Petrol, diesel prices may be cut if crude rates stay low for longer: Petroleum Secretary

Indians now need to pray for the global oil prices to stay at lower levels for a longer period to get the much-needed relief from petrol and diesel prices that fan inflation and add to severe cost pressure for the households. Petrol prices and diesel rates in India have continued to remain at elevated levels for last few years in India, even as crude oil prices had fallen.

Oil companies will consider reducing fuel prices if the price of crude oil remains low for an extended period, said Pankaj Jain, secretary at the Ministry of Petroleum and Natural Gas.

Also Read: Fuel price cut coming? As crude slips, hope floats for Indian consumers

Crude oil prices slump

Crude oil prices have recently slumped to near three-year low, boosting the profitability of fuel marketing companies and potentially paving the way for a reduction in pump prices before elections in key states such as Maharashtra and Haryana. However, the declines in crude oil prices have not translated to reductions in petrol prices or diesel prices in India. In fact, for the petrol and diesel price cut in March, Indians have been denied of relief on petrol, diesel prices for months in tandem with declines in global oil prices.

On Tuesday, Brent crude, the primary international oil contract, dropped below $70 per barrel for the first time since December 2021 due to worries that slowing economic growth is dampening fuel demand.

Oil price fall and OMCs' marketing margins

The drop in oil prices has led to favorable marketing margins for fuel retailers, particularly state-run companies that dominate 90% of the market. Taking advantage of this situation, the government instructed the three major state-run retailers — Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) — to reduce petrol and diesel prices by Rs 2 per litre on March 14, just ahead of the general election.

Petrol price was decontrolled in 2010, linking it to global market prices, and that of diesel in 2014.

Indians in many states are still paying over Rs 100 per litre for petrol while diesel prices remain above Rs 90 a litre. The fuel has a large impact on inflationary pressures for its wide range of use from transportation to cooking, while slew of industries also depend on it ranging from tyres to aviation.

What India wants from OPEC+

India also wants oil cartel OPEC+ to boost output as there are countries such as India where fuel demand is rising, the secretary said, according to Reuters.

Last week, OPEC+, which is made up of the Organization of the Petroleum Exporting Countries and allies led by Russia, agreed to delay a planned oil output increase for October and November after crude prices slumped.

India, the third-largest oil importer and consumer globally, relies on overseas sources for over 87% of its oil requirements.

Indian companies are also set to maximise crude oil purchases from the most cost-effective suppliers, including Russia, the secretary said.

Indian refiners are opting for Russian crude because it is offered at discounted rates compared to similar grades from Middle Eastern suppliers, even when accounting for the longer transit times.

Following the onset of the Ukraine war in February 2022, Russian oil rapidly entered the Indian market as European countries began shunning Moscow's supplies. Russia's share of India's crude imports surged from less than 1% before the conflict to 42% in the first five months of this fiscal year, displacing other major suppliers such as Iraq, Saudi Arabia, the UAE, and the US, according to energy cargo tracker Vortexa.

The secretary also said India's oil ministry is in talks with the finance ministry regarding crude windfall tax and he sees no windfall tax on refined fuels if product cracks stay low.