For over a year now, consumers have been reeling under the weight of high retail prices of petrol and diesel.
The price of petrol price in Delhi crossed the Rs 100 mark in March 2022; it still retails at over Rs 96 per litre while diesel costs around Rs 90.
High fuel prices in India have mostly been attributed to high prices of crude oil in the international markets. More so, since the start of the Russia-Ukraine war.
The explainer breaks down how your fuel prices are determined and why they are dependent on international prices.
Why international prices are important?
India is majorly dependent on other countries for sourcing its crude oil requirements, which when refined gives petrol and diesel. Almost 85 percent of India’s crude oil requirement is met through imports. Therefore, international crude oil prices play an important role in determining the prices of fuel in India.
India imports a majority of its crude oil requirements from Middle-Eastern countries, such as Saudi Arabia and Iraq. Recently, Russia joined the fray.
Why rise in prices?
Crude oil prices have been on the rise since the war broke out between Russia and Ukraine in February 2022.
Russia is one of the largest producers of crude oil in the world. A slew of sanctions has been imposed on Russia by most of the countries in Europe, which is majorly dependent on Russian crude oil and natural gas.
As a result of geopolitical tensions, crude oil prices touched a 14-year high in March 2022 with the US benchmark Brent rising to $140 per barrel. Since then, however, prices have come down to $85 per barrel amid recession fears and deteriorating demand.
It is expected that prices may again soar in 2023 after the Organisation of the Petroleum Exporting Countries (OPEC) and its allies recently cut the oil production for the year by 1.6 million barrels per day.
If crude oil prices again touch the $100-mark, Indian oil marketing companies (OMCs) Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL) may again start making losses.
Performance of the OMCs directly affects the end consumers as the oil giants would refrain from lowering fuel prices in the country.
Fuel charge breakdown
The money you cough up at the petrol pump in the form of fuel price, includes freight charges, taxes imposed by central and state governments, and dealer commissions.
Other than crude oil costs, the retail selling price of fuel in India constitutes the OMCs' margin, which includes refining costs, transportation costs, operational costs and commission to dealers.
On top of this, central and state governments levy taxes on petrol and diesel as excise duty and value-added tax (VAT).
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