During the last three weeks or so, the oil marketing public sector undertakings (PSUs) viz. Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) have increased the retail price of petrol and diesel continuously almost every day. The cumulative increase works out to about Rs 9 per liter petrol and Rs 11 per liter in case of diesel. As a consequence, the current price of both the fuels in Delhi is about Rs 80.5 per liter. In April/May, petrol was selling at Rs 71 per liter whereas diesel price was Rs 69 per litre. The prices of petrol and diesel are deregulated [petrol since June 2010 and diesel since October 2014]. The oil...
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Category: Pricing Policies & Subsidies
Oil and gas – don’t fiddle with formula-based pricing
India depends on imports for about 83% of its crude oil and 50% of gas requirement. Considering the huge quantities involved, the price at which these products are imported has a potent effect on the health of the economy by impacting the twin deficits viz. current account deficit [CAD] and the fiscal deficit [FD] and other related parameters such as inflation, interest rate, borrowing cost etc. Therefore, all stakeholders including the government – both Centre and states – always pray for reduction in their prices. The steep reduction price of crude from over US$ 70 per barrel at the start of 2020 to around US$ 35 per barrel currently [on April 22, it even went below US$ 20 per barrel] and...
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Hike in oil duties – a retrograde move
In the wake of widespread destruction of demand triggered by Covid – 19, the international price of crude has plummeted to a low of about US$ 20 per barrel despite a historic agreement between OPEC and non-OPEC suppliers on April 10, 2020 to cut production by 10 million barrels per day [mbpd] – as demand destruction [about 29 mbpd] far exceeds the cut in supply resulting a huge glut. De jure, the prices of petrol and diesel are deregulated [this was done: petrol in June 2010 and diesel in October 2014]. The oil marketing companies are expected to adjust the price in line with movement in their international price. Now, that the international price of crude has declined [albeit steeply],...
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What India should do when oil prices have crashed
With crude price low, the govt should think of moving completely to DBT for food, fertiliser and power. Crude oil plummeted to less than US$ 30 per barrel – drop of 50% over its level in the beginning of 2020. ————————————————————— Much before Covid 19 had assumed monstrous dimensions, the international crude oil market was already oversupplied. Then, OPEC and non-OPEC suppliers failed to reach an agreement as Russia refused to back even a moderate cut. In sync with its past behaviour under similar circumstances (1997, 2015), Saudi Arabia pumped additional supplies prompting tit-for-tat by Russia. As a result, crude oil plummeted to less than US $30 per barrel – drop of 50% over its level in the beginning of...
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Detoxify oil pricing
The COVID-19 outbreak is a rare event and oil exporters may think that after this ends they can continue to extract a higher price from importing countries. This is flawed thinking On October 15, 2018, while interacting with global leaders from the energy sector in New Delhi, Prime Minister Narendra Modi had expressed concern over the steep increase in the international prices of crude oil (at $80 per barrel leading to corresponding increase in price of diesel and petrol) and had urged all leading producers/exporters to be more responsible in fixing the price, to bring it down to a reasonable level. At that time, no one had even contemplated a scenario wherein the price of crude would plunge to a fraction of...
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Detoxify oil pricing
On October 15, 2018, interacting with global leaders from the energy sector in New Delhi, prime minister, Narendra Modi had expressed concern over the steep increase in the international price of crude oil [then the price had touched US$ 80 per barrel leading to corresponding increase in price of diesel and petrol; this even hurt BJP politically as the party lost three state assembly elections viz Madhya Pradesh, Rajasthan and Chattisgarh] and urged all leading producers/exporters to be more responsible in fixing the price to bring it down from current high to reasonable level. Then, he might not have even contemplated of a scenario wherein the price of crude would plunge to a fraction of the October 2018 level; on...
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Stop using fuel taxes as milch cow
High excise duty and VAT on fuel results in high inflation, higher subsidy payments on fertilisers, food, etc, and low international competitiveness of Indian goods. Centre is desperate to grab any opportunity available to garner additional revenue. Therefore, it has hiked the duty. ———————————————————————————————— In the wake of widespread destruction of demand triggered by Covid-19, failure of OPEC and non-OPEC suppliers to agree to a production cut, and the two front-line exporters from the respective groups viz. Saudi Arabia and Russia vying to capture the shrinking market, the price of crude oil has plunged to less than $30 per barrel. Leveraging this, in sync with its past practice of mopping up the oil bonanza, the Modi government has yet again...
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Stop using fuel taxes as milch cow
Within a couple of months of beginning his first term, Modi was conferred with oil bonanza. The international price of crude oil [India depends on import for meeting over 80% of its requirement] had moved on a downward trajectory from a peak of US$ 117 per barrel in November 2014 to US$ 28 per barrel in January 2016. The government mopped up a major slice of this reduction by increasing the central excise duty [CED] on petrol from Rs 9.8 per litre to Rs 21.5 per litre and on diesel from Rs 3.8 per litre to Rs 17.3 per litre [the hike was given effect to in as many as 9 rounds]. After January 2016, the crude price increased gradually...
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Price control: The gas on gas price deregulation
Under a special package for deep/ultra-deep, high-pressure/high-temperature (HP/HT) fields announced in March 2016, the supplies therefrom are allowed ‘premium’ price, linked to the prices of alternate fuels, including fuel oil, naphtha, and imported liquefied natural gas (LNG). The government has initiated discussions to ‘lift price restrictions on domestically produced natural gas’. However, it intends to do it ‘gradually’. It wants to continue with regulated gas pricing for at least three more years. However, in the interregnum, producers will be given freedom to sell a portion of the total output under ‘negotiated pricing deals’ with their customers. Will it help? Under the guidelines in effect since November 1, 2014, for all domestic supplies from fields given under the new exploration and...
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Gas price deregulation – what is holding back
The government has initiated discussions to ‘lift price restrictions on domestically produced natural gas’. However, it intends to do it ‘gradually’. It wants to continue with regulated gas pricing for at least three more years. However, during the interregnum, producers will be given freedom to sell a portion of the total output under ‘negotiated pricing deals’ with their customers. Will it help? Under the guidelines in vogue since November 1, 2014, for all of domestic supplies from fields given under new exploration and licensing policy [NELP] as also blocks given on ‘nomination’ to Oil Natural Gas Corporation [ONGC] and Oil India Limited [OIL] under pre-NELP, the price [call it normal price] is a weighted average of prices at 4 international...
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