New Delhi: India’s crude oil cost has surged above $100/barrel as global benchmark prices jumped and the US dollar breached the Rs 75 mark to push under-recoveries on petrol and diesel by over Rs 10. Diya, which worked magic for a long time. Upward revision in fuel prices inevitable without tax cuts.
Available government data shows ‘indian basket‘, or the crude India mix rose to $100.71 a barrel on Thursday brentThe global benchmark oil climbed to $105 a barrel, the highest level since 2014. Also, the greenback also appreciated by Rs 75.26.
The combined effect has widened the gap between the cost of production and the retail prices of petrol and diesel. Inventory gains – or oil bought at a lower price and refined when prices are higher – can bridge the share of under-recoveries. But it’s unlikely that retailers will be able to keep retail prices unchanged for much longer, without hurting their bottom lines deeply.
India’s crude oil costs follow that of Brent, which has a weighting of around 25% in the basket, with a gap of a few dollars that depends on a number of factors. Crude oil price is one of the determining factors for fuel prices in India which is linked to their international prices and dollar exchange rate.
Crude oil prices in India were at $83-84 a barrel on November 4, when the Center cut diesel by Rs 10 a liter and petrol by Rs 5 to provide relief ahead of elections in five states. State governments matched the move by reducing VAT.
Since then, pump prices have remained stable under an unofficial government order, although in the meantime India’s crude oil costs have risen by around $17-18 a barrel. As seen in the timing of the previous elections, the Center is expected to lift the freeze after polling ends on March 7 and prices will start moving north until the Center goes for another round of tax cuts.
Although unconfirmed reports in recent days say the Center is evaluating the proposal, it will not be easy. An extended period of high energy prices will impact India’s economic growth as the country meets 83% of its crude oil requirement through imports. Each $1 appreciation in the price of Brent is estimated to add $2 billion to the oil import bill. Investment bankers believe that a 10% increase in oil prices increases India’s current account deficit by 0.4-0.5% of GDP.
The Center does not import oil directly, but the effect of the cost of crude oil still affects the government maths. The current account deficit, or the gap between imports and exports widens, weakens the rupee due to higher demand for the dollar. Subsidy bills and inflation, which has an impact on interest rates, also rises. All these ultimately squeeze the government’s ability to spend on social sector schemes or concessions to revive the economy.
High subsidy liability on fertilizers and kitchen gas – if the government re-introduces it to ordinary consumers – would tie up money, which could otherwise be spent on infrastructure schemes driving social welfare and economic growth.
Available government data shows ‘indian basket‘, or the crude India mix rose to $100.71 a barrel on Thursday brentThe global benchmark oil climbed to $105 a barrel, the highest level since 2014. Also, the greenback also appreciated by Rs 75.26.
The combined effect has widened the gap between the cost of production and the retail prices of petrol and diesel. Inventory gains – or oil bought at a lower price and refined when prices are higher – can bridge the share of under-recoveries. But it’s unlikely that retailers will be able to keep retail prices unchanged for much longer, without hurting their bottom lines deeply.
India’s crude oil costs follow that of Brent, which has a weighting of around 25% in the basket, with a gap of a few dollars that depends on a number of factors. Crude oil price is one of the determining factors for fuel prices in India which is linked to their international prices and dollar exchange rate.
Crude oil prices in India were at $83-84 a barrel on November 4, when the Center cut diesel by Rs 10 a liter and petrol by Rs 5 to provide relief ahead of elections in five states. State governments matched the move by reducing VAT.
Since then, pump prices have remained stable under an unofficial government order, although in the meantime India’s crude oil costs have risen by around $17-18 a barrel. As seen in the timing of the previous elections, the Center is expected to lift the freeze after polling ends on March 7 and prices will start moving north until the Center goes for another round of tax cuts.
Although unconfirmed reports in recent days say the Center is evaluating the proposal, it will not be easy. An extended period of high energy prices will impact India’s economic growth as the country meets 83% of its crude oil requirement through imports. Each $1 appreciation in the price of Brent is estimated to add $2 billion to the oil import bill. Investment bankers believe that a 10% increase in oil prices increases India’s current account deficit by 0.4-0.5% of GDP.
The Center does not import oil directly, but the effect of the cost of crude oil still affects the government maths. The current account deficit, or the gap between imports and exports widens, weakens the rupee due to higher demand for the dollar. Subsidy bills and inflation, which has an impact on interest rates, also rises. All these ultimately squeeze the government’s ability to spend on social sector schemes or concessions to revive the economy.
High subsidy liability on fertilizers and kitchen gas – if the government re-introduces it to ordinary consumers – would tie up money, which could otherwise be spent on infrastructure schemes driving social welfare and economic growth.
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