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Dhaka Saturday,  Jun 3, 2023

Fuel Rates May Rise Rs 6 On Global Cues

The Economic Times

Indian consumers will soon have to pay more for fuel as global crude oil prices have shot up 15% in the last two weeks as OPEC and other major producers such as Russia have agreed to cut supplies for the first time since 2001.

Analysts said state oil marketing companies may need to raise petrol and diesel prices by up to Rs 6 per litre when they review global fuel rates on December 15. However, some industry officials said the government may want to spread the pain over two instalments to make the increase more politically acceptable at a time when the cash crunch is hurting people.

Hindustan Petroleum Corp chairman Mukesh Surana said the spike in international oil price would require oil companies to raise fuel rates but he didn’t say by how much.

“It would depend on what is our perception of the future prices, the price elasticity and any other sensibility… I can’t tell you the exact quantum of the increase,” he told ET.

India, one of the world’s top oil importers, has been a big beneficiary of low prices, which fell from a high of $115 a barrel in June 2014 to under $30 in February this year. The country imports about 80% of the oil it consumes. Low oil prices have helped India keep inflation and the current account deficit under check over the last couple of years.

Oil prices started rising again since end-November after the Organisation of the Petroleum Exporting Countries (OPEC) and non-member producers, led by Russia, agreed to cut output to ease the global supply glut.

Indian basket crude oil price hit $54.42, or Rs 3,677.60, per barrel on Monday. It has remained above $51 per barrel on most days this fortnight, compared to the November average of $44.46 per barrel.

“Fuel prices are a function of the international crude prices, the crack (difference between crude oil and refined product price) and the exchange rate, and their movements this fortnight suggest that oil companies may need to raise prices of petrol and diesel by Rs 5-6 per litre,” said Ritesh Gupta, an analyst at Ambit Capital. “They can either take the full hike in just one shot or stagger it since the quantum is quite high.”

Others also said the oil companies are unlikely to pass on the price increase in one go. “People are already stressed due to demonetisation. I don’t think the government will want to add to their trouble by letting companies effect a sharp price hike,” said Vaibhav Chowdhry, an analyst at KR Choksey.

“A hike of Rs 3-4/litre is possible. The balance will have to be either staggered or borne by the government by offering an excise duty cut.” An analyst at a domestic brokerage, however, warned against government influencing the prices. “Any attempt by the government to stall a full price hike would send a wrong signal to investors that reforms are at risk,” the person said.

India deregulated the price of petrol in 2010 and that of diesel in 2014 and has since left it to the state companies to decide on rates that are aligned with import prices. The state companies do not make public every detail of the price revision but their rates have largely followed the trends in the international markets except on a few occasions in the run-up to elections.

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