Petrol may turn cheaper by Re 1

Petrol prices are likely to fall by up to Re 1 per litre this week, thanks to the declining trend in international prices. Once announced, this would be the second price cut in a row. Oil marketing companies (OMCs), which are free to decide petrol prices, had announced a cut of Rs 2.22 a litre on November 15. This had more than negated the rise of Rs 1.8 they had declared earlier in the month.

However, the price of aviation turbine fuel (ATF) is expected to rise by around three per cent from the existing Rs 62,310 per kilolitre in Delhi, exerting further pressure on loss-making airlines. On diesel too, the losses of companies are expected to increase by another Rs 2 a litre from the current Rs 10.17 a litre. Internationally, both ATF and diesel are having a price trend divergent to petrol.

The likely cut in petrol prices will not only be the second since January 2009, it will also be the second since the fuel was decontrolled in June last year. “The international petrol price trend for this fortnight can allow the companies to make a cut of up to Rs 1 a litre, inclusive of taxes. This is despite a further weakening of the rupee against the dollar in the current fortnight,” said an industry official. Compared to an average Rs 49.6 against the dollar in first fortnight of the month, the rupee has averaged Rs 51.6 this fortnight. However, the international price drop is steeper, making a price cut possible.

OMCs review petrol prices on a fortnightly basis. They calculate the prices based on their trade parity (80 per cent import price weight and 20 per cent export price weight) for the previous fortnight.

Since the decontrol, petrol prices have risen nearly 39 per cent to Rs 66.42 a litre in Delhi. During the same period, diesel, which is still regulated, saw prices increase by a marginal 7.4 per cent to Rs 40.9 a litre. The gap between petrol and diesel prices, which used to be 25.8 per cent prior to decontrol, has now widened to 66.42 per cent.

As a result, petrol consumption has taken a beating. Compared to double-digit growth in recent years, consumption of petrol has been growing at 4.8 per cent, while that of diesel has been growing at 5.9 per cent. This is also one of those very few years when diesel consumption has grown at a higher rate than petrol. Data for the last 15 years (except 1996-97 and 2004-05) show a higher consumption growth for petrol.