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Does Crude Oil In Negative Means Indians Do Not Have To Pay For Petrol?

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Crude oil turned negative on Monday and many consumers have questions on whether it means we do not have to pay for petrol and diesel.

Does Crude Oil In Negative Means Indians Do Not Have To Pay For Petrol?
 

Let us understand some details first

US crude oil future May contract turned negative at minus $36. Now, this is in the futures market. In the futures market, one has to settle a contract before expiry and Monday was the last day for expiry of the May contract.

The worry for many investors holding this contract was that there was no storage space and they thought better to pay investors for the contract, rather then pay for storage. This was why crude went into negative, which means the seller paid the buyer to "buy".

The futures market is very different from what we pay at the retail level.

Will petrol and diesel price turn negative in India?

This is unlikely to happen, because the dynamics are different. Crude oil is first imported by the major oil refining companies including government owned companies like Indian Oil, BPCL, HPCL etc., and is refined into petrol, diesel, kerosene and ATF etc.

Now, the Indian Crude Basket price is around $33 per barrel. This basket is the weighted average of Dubai and Oman (sour) and the Brent Crude (sweet) crude oil prices. It is used as an indicator of the price of crude imports in India and Government examines the index when deciding on things like fixing the excise.

Now, apart from this there are various costs that are involved in the final price that we get at the retail petrol pumps. Let is see what are the other costs:

1) Refining cost after importing crude

2) Excise duty, charged by the central government

3) Dealer commission

4) Value added tax

In some states the costs of petrol is doubled by the cost of the excise duty, dealer commissions and value added tax.

 

With all these costs, there is no way that Indians are going to see any sharp cuts in petrol costs. In fact, whenever crude oil prices plunge, there is an increase in excise by the central government to mop-up additional revenue.

Petrol prices at the petrol pumps has remained unchanged for the last several weeks. This may not matter too much, given that the nation is in a lock-down for the last few weeks. One should wait and watch to see if petrol prices are slashed after May 3, when the lockdown maybe eased.

GoodReturns.in

Read more about: crude oil petrol
Story first published: Tuesday, April 21, 2020, 11:20 [IST]
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