Petrol Price Can be Rs 50-Who Needs to be Blamed for Rising Petrol Price in India?

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India is not only the world’s 3rd largest Crude oil importer but also the 10th largest exporter of refined petroleum in the world. India export 20% refined oil. India is a huge industry of Oil refining, so oil refineries export refined oil to petrol bunks. Refines oils include useful products such as petroleum, gasoline, diesel fuel, asphalt base, heating oil , kerosene, liquefied petroleum gas, jet fuel and fuel oils.

Calculating Crude Oil Cost –

1 barrel of Crude Oil is Equivalent to around 159 Litres of Crude Oil. Today international Brent crude is $80. The rupee is 74.4/$. So one barrel crude in Indian Rupee is Rs 5952 (74*74.40)

Raw Crude Oil in Indian Currency per litre is Rs 37.4(5952/159). Oil refineries sell in base price(Rs 37.4) both in & outside side. Let's see how inside India it sell 3times more of the base price at Rs 100.
The base price of the fuel is Rs37.4  per litre, according to the Indian Oil (NS: IOC ) website including freight levy of Rs 0.37 per litre, the price charged to dealers (excluding excise duty and VAT) was Rs 37.77 per litre.
Add to it excise duty of Rs32.98 per litre and dealer commission, which averaged Rs 3.84 per litre. On this, further, add VAT or value-added tax (including VAT on dealer commission) of Rs  23.35 per litre.
Note: Odisha imposed 32% VAT on petrol compared to other states who charge 20-25% VAT. A year back WTI Crude price was negative -$37 per barrel and oil price recovery is too fast that now it’s trading at $80 per barrel.  

Why was Crude oil price pushed to negative and what happened after one year it trade near a seven-year high?

Worldwide oil demand has collapsed at an unprecedented speed because the coronavirus has caused a mass halt to global transportation systems & worldwide oil consumption fell. U.S. government refusal of production cut despite historical cut by OPEC+ led to excess supplies. The meltdown in WTI crude oil price turned negative as the world runs out of storage capacity. The oil price has soared more than 30% so far this year. WTI Crude Oil price is near seven-year high after OPEC+ shocked the market with a decision to keep supply limited as the global economy starts to recover from a pandemic-driven slump.

Why is India unable to take advantage of collapsed Oil prices?

Indian oil refiners took advantage of falling prices and fill-up countries strategic oil reserves with cheap oil but which was not enough. The U.S. has 714 million barrels of oil storage capacity in its strategic petroleum reserve. In comparison, India stores 5.33 million tonnes of crude oil in underground storage at three locations, hardly enough to meet its 9.5 days needs. The International Energy Agency prescribes its members to have at least 90 days of stock in the strategic reserves.
Due to less storage capacity, India didn’t take advantage of the historical falling crude price. Neither Indian refiners were able to take full advantage of the drop in oil prices nor were Indian consumers were able to take benefit of low oil prices.
Prices of petrol and diesel had not been changed by government-owned Oil Marketing Companies (OMCs) for 36 days in a row despite a historical fall in global oil in March & April 20.

Note:- Petrol and diesel price deregulated in 2014. Deregulation means the retail price of commodities should be moving in tandem to the changes in global price but it is a case of deregulation over papers only. Tax on petroleum has become a cash cow for the government and discussion about bringing this under the ambit of Goods and Services Tax (GST) is just an eyewash for common people because no government would like to do so. For example: Now, if prices start being regulated under the GST, this excise duty & AVT will be done away with & 28% GST will be levied on the base price (Rs 37.4) which comes out to be Rs 11. To this, we will add the dealer's commission of Rs 3.84 and our retail price of petrol comes down to Rs 51.7.

Time to take faster action:-

India needs to increase storage capacity rather than exploring the possibility of storing its oil in the U.S and paying rent. India needs to work faster on the alternative of oil such as EVs rather than a plea to Saudi Arabia and OPEC countries to stable price. The immorality of policy: Govt. need to pass the benefit to the consumer (as per Deregulation) and consider of include petrol & Diesel in GST to lessen the tax burden on common people. Any further rise in Crude oil price will be alarming for post-pandemic economic recovery.

Disclaimer: 
The views expressed in this article are those of the author (the author is a certified Research Analyst).

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  • RAHUL ADI @RAHUL ADI
    gr8 analysis
    Like 2
  • xtemp abc @xtemp abc
    It seems Biswajit Behera needs more studies on this topic..It’s better to give comprehensive analysis rather than one direction only. It is suggested to look into other aspects as well.
    Like 0
  • SATYAJIT RAY @SATYAJIT RAY
    Unique analysis.
    Like 1
  • Tariq Irfan @Tariq Irfan
    Well, If Government will increase its storage capacity it will be in the hands of private players or even if they keep the ownership they will still make consumers life miserable. information provided is to the point but the thing is government will never pass benefits to consumers whatsoever.
    Like 2
  • a clear analysis
    Like 1
  • Satish Sharma @Satish Sharma
    Awesome information
    Like 1

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