Petrol Prices May Rise Steeply After Karnataka Elections; Here's Why?

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Petrol and Diesel prices at the state-run oil marketing company IOC are revised every day at 6 am. On April 24, diesel prices were at an all-time high in Delhi at Rs 65.93 while petrol rose to Rs 74.63. However, it has remained stagnant for 19 days now, despite the steady increase in crude oil prices globally.

Petrol Prices May Rise Steeply After Karnataka Elections; Here's Why?

IOC (Indian Oil Corp) recently said that there was no revision in the prices of petrol and diesel as it believes that the spike in the international crude oil prices was not based on market fundamentals and they did not want to induce a sense of panic among the Indian consumers. It also claimed that the moderation in prices despite the increase in global rates was a coincidence and had nothing to do with the assembly polls in Karnataka.

It is a known fact the Indian government for years has regulated the crude oil prices and that individual states have the freedom to revise fuel prices on a daily basis.

Why should you worry?

Fuel prices in India are mainly influenced by the fluctuation in rupee exchange value and movement in international fuel prices. Right now, both do not favour Indians.

The rupee had crossed its 67-level mark against the dollar this week, reaching a fresh 15-month low on Thursday at 67.32. Global crude oil prices too have been on a steady rise. In the international market, the crude oil price change is measured by two major benchmarks, West Texas Intermediary (WTI) and Brent, while the Indian petrol ministry uses a crude oil basket known as the Indian Crude Basket to set petrol prices in the country.

The Indian Crude Basket is a weighted average of 1) Oman and Dubai sour crude price benchmark, and 2) Brent sweet crude price benchmark. (Sour means higher Sulphur content in the oil while sweet is the opposite. Sour involves extra processing cost). Both of these are processed in Indian oil refineries.

The price of the Indian Crude Basket is revised every day by the Petroleum Planning and Analysis Cell (PPAC) of the Ministry of Petroleum and Natural Gas (however, only monthly average is available on its website). This price is an indicator of crude import prices in India. The government also watches it to decide the domestic prices accordingly.

Below is a price list for Brent Crude Oil since April 24. (Source: nasdaq.com)

Date Daily Avg PriceChange %
May 11, 201877.12-0.45%
May 10, 201877.50.38%
May 9, 201877.213.15%
May 8, 201874.85-1.73%
May 7, 201876.171.74%
May 4, 201874.871.70%
May 3, 201873.620.35%
May 2, 201873.360.31%
May 1, 201873.13-2.71%
Apr 30, 201875.170.71%
Apr 27, 201874.64-0.13%
Apr 26, 201874.741.00%
Apr 25, 2018740.19%
Apr 24, 201873.86-1.14%

As you can see, the price has been steadily rising. The reasons for the rise have been the reduction in production from the Organization of Petroleum Exporting Countries (OPEC), the reduced oil output from Venezuela and the geopolitical tensions arising from US president Trump's decision to withdraw from the Iran pact.

It also affects India because it is highly dependent on imports to meet its domestic demand for fuel. Iran being the third-largest supplier for India, could mean that our country's crude oil import bills could disrupt from the re-imposed of sanctions on the oil-rich nation. There were reports in April that India was planning to double its oil imports from Iran in the current financial year. However, a Reuters report from Thursday night also says that IOC bought 3 million barrels for its June loading from the US.

On the other hand, taxes imposed form a great part of the fuel prices in India. The prices of Indian crude basket as per the PPAC's website has almost halved in the past few years, but the benefits of this were not exactly passed on to the consumers. (Table source:ppac.org.in)

PeriodPrice in $ for a Barrel
April 2013101.57
April 2014105.56
April 201559.07
April 201639.88
April 201752.49
April 201869.3

The price you pay at the fuel stations include customs and central excise.

Customs: (Source: ppac.org.in)

ParticularsBasic Customs DutyAdditional Customs Duty (CVD)Additional Customs Duty
Petrol2.50%Rs.4.48/ltr. + Rs.7.00/ ltr SADRs.8.00/ltr.
Petrol (branded)2.50%Rs.5.66/ltr. + Rs.7.00/ ltr SADRs.8.00/ltr.
High Speed Diesel 2.50%Rs.6.33/ltr+ Rs.1.00/ ltrRs.8.00/ltr.
High Speed Diesel (branded)2.50%Rs.8.69/ltr+ Rs.1.00/ ltrRs.8.00/ltr.
Liquefied Natural Gas2.50%Nil-
Natural Gas[Gasious state]0.05Nil-
Natural Gas[Compressed]5.00%14.00%-

Excise Duty: (Source: ppac.org.in)

ParticularsBasic Excise DutySpecial Additional Excise Duty (SAD)Additional Excise Duty (Road and infrastructure Cess)
PetrolRs.4.48/ltrRs.7.00/ltr Rs.8.00/ltr.
Petrol (branded)Rs.5.66/ltrRs.7.00/ltr Rs.8.00/ltr.
High Speed Diesel Rs.6.33/ltrRs.1.00/ltrRs.8.00/ltr.
High Speed Diesel (branded)Rs.8.69/LtrRs.1.00/ltrRs.8.00/ltr.
Liquefied Natural GasNil--
Natural Gas[Gasious state]Nil--
Natural Gas[Compressed]14.00%--

A note below the tax central excise and customs tariff table says, "In addition to the above , 10%  Social Welfare Surcharge (3% in case of petrol and diesel) is also applicable on the total duties of Customs (excluding CVD in lieu of IGST)". Apart from this you also pay state-wise sales tax, which is why you pay different rates in each state.

Since 2018, the excise duty imposed on petrol and diesel went up by almost 10 times, although in October last year, it was reduced by Rs 2 per litre for the first time in four years.

The rise in international crude prices seems inevitable, with Bank of America Corp estimating the cost per barrel of Brent to reach $100 next year. The relief, therefore, will have to come to come from the ease of domestic taxes.

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