Immediate fuel price hike unlikely; govt comfortable with $100 crude

With benchmark crude oil prices hovering around $100 a barrel, oil marketing companies (OMCs) are unlikely to raise retail prices of petrol and diesel.

Senior policymakers told Business Standard that the government is comfortable with crude prices at below $100 and even if international prices go above that level for short spans of time, the OMCs can absorb it.

“Just 10 days ago, analysts were saying crude would cross $140. Now it is below $100. So you see the situation in Europe is very uncertain. We do not know what will happen a month or six months from now,” said a top official.

In departments like the ministries of finance and petroleum & natural gas, global prices were being closely monitored, and any decision to raise prices will be taken by the OMCs, the person said.

This also means that the Centre will not be compelled to cut excise duties in case of a price rise, in order to reduce the burden on citizens.

“Any decision on excise duties will be taken at the highest level. However, for now, we are quite comfortable,” said a second official.

Since prices of petrol and diesel were de-controlled and petroleum subsidy was reduced to only pay for the Ujjwala cooking gas connection scheme, the Centre has stopped assuming average crude oil prices for its Budget-making process.

The latest Economic Survey assumed an average crude price of $70-75 a barrel for FY23, but officials did not utilise those assumptions in the 2022 Union Budget.

“The biggest factor working in our favour is that Russian crude is still not wholly sanctioned by the United States. While the US has stopped buying Russian oil, its European partners are more dependent on hydrocarbon from that country and will take time to phase out Russian energy supplies,” the first official quoted above said.

Benchmark Brent crude slipped below the $100-barrel mark for the first time in a month as it became clear that Russian supplies to Europe would continue for the time being. Additionally, analysts say there was profit taking and the expectations that Europe would find alternative sources of oil without much disruption. An increase in Covid cases in China also played a part in crude prices coming down.

As Business Standard reported earlier, taking advantage of a Russian offer to sell its crude oil on the cheap and bear the cost of insurance and transportation, India may import as much as 2 million tons or roughly 15 million barrels of crude from the sanctioned nation in 2022.

The last excise duty cut by the Centre was in November 2021, ahead of elections in five key states, including Uttar Pradesh and Punjab. Duty on petrol was cut by Rs 5 per litre and on petrol by Rs 10 per litre.

This was the reason the Centre reduced its FY23 Budget estimates for union excise duties to Rs 3.35 trillion from FY22 Revised Estimates of Rs 3.94 trillion. As far as the Finance Ministry is concerned, any further excise duty cuts will be detrimental to its fiscal calculations for FY23, especially given that the fertiliser subsidies could increase.

After the last round of duty cuts by the Centre, many states cut their value added tax and state tax as well.