Crude oil prices halved but prices of petrol & diesel just corrected less than 10%.

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The government hiked excise duty by a record Rs 10 per litre on petrol and Rs 13 per litre on diesel to garner Rs 1.6 lakh crore revenues.
Representative Image, Photo by Skitterphoto on Pexels.com

Global Crude oil prices are seeing significant correction since the beginning of 2020. Brent crude oil had hit the 2020 high of $70.74 on 6 Jan.It had reached a 52 weeks low of $24.52 on 18 March. Currently its trading around $27.3.Indian crude oil basket for 1 bbl closed at 1938 rupees on 20 march.One barrel is equal to 158.98 lit.Today petrol cost 69.59 rupees in Delhi and diesel .Government is using falling crude oil prices to achieve revenue target by increasing excise duty.

It means global Brent crude oil prices have almost halved since the start of 2020.It saw steep correction after world’s biggest oil exporter Saudi Aramco announced price cut in crude and entered price war on breakdown of alliance talk with OPEC members and Russia.Corona pandemic. Aramco is also increasing crude oil production to increase the supply.Corona pandemic also has contributing to the situation with meltdown in global stock markets.

But why petrol and diesel prices have not seen so much price cut?

One may wonder as petrol and diesel prices in India are synced with global crude prices. Oil distribution market in India is predominantly dominated by government run PUC companies like IOC,HPCL,BPCL.

Let’s have a look how petrol and diesel in Delhi have performed in the last three month.

Sr NoPetrol (in rupees)Diesel (in rupees)
1 Jan75.1467.96
1 Feb73.1966.22
1 March71.7164.30
Petrol and Diesel prices

It means petrol and diesel prices in India have just reduced by less than 10 % in three months.Though Brent crude oil and Indian crude oil prices have almost halved in the last three months.

Government last week increased excise duty on petrol and diesel prices by 3 rupees to increase the revenue. It means consumers are unlikely to benefit significantly from the falling crude oil prices. If crude prices corrects further , we may see another excise duty hike in coming days.

Corona pandemic is likely to reduce world GDP including India.In fact .Oxford economic have outlined two possible scenarios based on Oxford Global Economic Model: a) the pandemic is limited to Asia, and world GDP falls $0.4tn (0.5%) in 2020 b) In a global pandemic, it drops $1.1tn (1.3%). Revenue correction will also likely to drop along with GDP .Thanks to falling crude oil prices , the government is using it effectively to mitigate revenue shortfall.

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