New Delhi: Be ready to face an increase of Rs 4-5 per liter in the price of gasoline and diesel pump next month with public sector oil trading companies preparing to restart the daily review of oil prices. two petroleum products after the June closure is lifted.
Official sources from public sector oil trading companies said that all fuel retailers had a meeting last week to assess the situation and prepare the roadmap to restart the daily fuel review exercise after the COVID-related crash. -19.
The exercise could start even if the blockade is carried to the fifth phase starting in June, once the government gives its go-ahead for a marginal review of gasoline and diesel prices on a daily basis to prevent the OMC from having large losses when selling auto fuels below cost. There is an expectation that an extension of the blockade will now come with more relaxations that could allow market-determined prices for gasoline and diesel.
“The oil market has turned the tables this month, earning more than 50 percent of last month’s prices, hovering around $ 30 a barrel now and increasing. If the upward trend continued, the oil companies, which absorbed a large increase on excise taxes on gasoline and diesel earlier this month, they would start to have losses on the sale of gasoline and diesel. The volume of sales of automotive fuel has already decreased due to a reduction in demand caused by the pandemic and the Covid-19 blockade, “said an OMC official.
Already, the gap between the cost and the selling price of gasoline and diesel for the OMCs has reached around Rs 4-5 per liter. If this has to be covered over a period of time, since there is no further increase in global prices, auto fuel prices can be increased by 40-50 paisa per day for a couple of weeks to cover losses.
However, government sources indicated that the retail price of gasoline and diesel cannot be allowed to increase beyond one point, even if the daily price review is restarted. This would mean that petroleum products could rise marginally every day in 20-40 paisa or even less until oil companies can eliminate the gap between cost and sales.
The increase in retail price under the daily price review will depend on prevailing oil prices and the world oil market at the time of retail price determination. Following the current trend, crude oil prices rose more than 50 percent from last month’s prices when even benchmark Brent crude had fallen below $ 20 a barrel. It’s over $ 30 a barrel now. But the blockade has also reduced demand for auto fuel. This could maintain some control over prices.
Gasoline sells at Rs 71.26 per liter, while diesel at Rs 69.39 per liter in Delhi. Prior to this, the two maintained a price of Rs 69.59 and 62.28 between March 16 and May 4. Prices rose to the current level in Delhi as of May 5, as the state government increased VAT on products to increase revenue to cover the increased spending needed to verify COVID -19 spread.
The rise in retail prices has also become important to the OMC now, as the recent increase in excise duties without the resulting increase in gasoline and tax prices has substantially reduced its marketing margins from a record level of Rs 12-18 per liter. If it cannot raise prices when the global market is rising, it would start to incur losses that will become more pronounced as demand for the product also decreased by more than 50 percent last month amid the national blockade.