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Petrol, diesel prices may slump as oil tumbles to $45 per barrel

Industry experts said that state-run oil cos may have to cut petrol and diesel rates either this week or by January 31 ahead of the elections in Delhi.

, ET Bureau|
Updated: Jan 14, 2015, 10.32 AM IST
Crude falls below $46 as OPEC refuses to cut output
NEW DELHI: Petrol and diesel could become cheaper this week as international oil prices have tumbled to about $45 per barrel, continuing their downward spiral since June last year as the market remains oversupplied.

A fuel price cut will bring cheer to the ruling Bharatiya Janata Party ahead of the high-profile Delhi assembly election on February 7. But state-run oil marketing firms are reluctant to cut pump prices of auto fuels because of inventory losses as the value of crude oil purchased at higher rates falls in step with global prices.

Indian Oil Corporation (IOC), the country's biggest refiner, has lost more than Rs 12,000 crore, government and industry officials said. Indian refiners purchase crude in advance, which they process after about 30-40 days. At times, prices can fall more than 20% in this period. Petrol, diesel prices may slump as oil tumbles to $45 per barrel "The Cabinet has deregulated petrol and diesel with an understanding that companies would pass on the benefit of falling crude oil to the customer. If companies resort to cartelisation, the government would be constrained to mop up the margin by levying additional excise duty as in the past," a government source said.

The government hiked excise duty on petrol and diesel by Rs 2 a litre on January 1 after state fuel retailers decided to retain margins to meet inventory losses after long deliberations on the night of December 31. The government mopped up a substantial portion of the margins for the third time since November 2014.

"Companies would not be able to raise prices of petrol and diesel when crude oil prices move up unless they pass on the benefits of falling crude prices to consumers," another government source said. Benchmark Brent crude, which was around $115 per barrel in June last year, slipped to around $46 on Tuesday after Goldman Sachs said prices would fall further and producers in the Middle East deciding not to reduce output.

Government and industry sources said a fuel price cut is imminent also because of a minor appreciation of the rupee against the dollar. "Rupee has gradually appreciated for crude importers from 63.45 per dollar on January 7 to 62.16, which reduces pressure on domestic retail prices," an official in the Petroleum Planning and Analysis Cell said, requesting anonymity. The exchange rate has significant impact on fuel rates because India imports more than 80% of the crude it processes and pays in dollars.

Industry experts said that staterun oil companies may have to cut petrol and diesel rates either this week or by January 31 ahead of the elections in Delhi.

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