Fuel price cut: What do the numbers reveal about India's oil economy?

“Apart from the current account deficit (CAD), which is directly dependent on oil prices, all other macroeconomic parameters are comforting,” finance minister Arun Jaitley said after announcing a Rs 1.5/litre cut in excise duties, and convincing oil firms to absorb another Rs 1/litre, for petrol & diesel. 
 

For the first four months after the NDA government took over in May 2014, global crude oil price neared $100/barrel. On the eve of New Years’ Day of 2015, it nearing $50 per barrel was no less than a gift. 

The first signs of rising crude prices were visible at the beginning of FY19. Now experts are contending whether they would average at levels close to those in the first year of NDA. With the cut, the fisc will have to bear a loss of Rs 105 billion. 

But there is more to India’s oil economy that just duties. Here are some aspects of it that give a fuller perspective. 

41% The import-export dynamics of petroleum and products has been changing. In the first four months of FY19, the value of exports of petroleum products stands at 41% of the value of crude oil imports, down from being 50% in the first year of the current government. The probable reason for this, experts say, is that Indian oil firms service domestic consumption to a greater extent than before. If this trend sustains, the trade deficit will bulge, and the subsequent rise in CAD would oblige the government to look for more foreign capital to bridge the current account gap.

 

$94.75/bbl Due to the trade parity pricing principle, landed cost of diesel in India stands at $94.75/barrel. At the prevailing exchange rate, this translates into diesel sold by refineries at Rs 43.2/litre to the oil marketing companies (OMCs). While the FOB (freight-on-board) price for crude oil pertains to the price at the source port from which India buys oil, the cost and freight price pertains to the landed price of a particular product at the destination port in India. Keeping their margins at about Rs 3 per litre for diesel, OMCs sold diesel at Rs 46.2/litre to dealers till Thursday. With a decision to absorb a rupee, their margin would reduce to Rs 2/litre. OMCs sold diesel at Rs 29/litre on June 1, 2017

$86/bbl Brent crude price crossed $86/barrel intra-day on Thursday to settle just below the figure. In the past few quarters, world oil supply had been less than the demand. On account of addition to supply from Russia and Saudi Arabia, August 2018 witnessed more supply than demand after four quarters.

Reports say markets expect supply shortfall owing to axe of full US sanctions on Iran in November & reducing supply from Venezuela.



 

 

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Rs 6,166/bbl As Brent crude forms a major part of the Indian import basket, the price the oil seller charges us has shot up the roof. Crude price for Indian basket touched $84.43/bbl on October 3. As ruppe deteriorated, the FOB price of crude oil broke the Rs 6,000 barrier for the first time since Sept 2014, to touch Rs 6,166/bbl on Wednesday

 

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74,567/kl Airline fuel, too, is costliest under this government. Aviation turbine fuel (ATF) price shot up to Rs 74,567/kl at Delhi after the Oct 1 revision, the highest since Mar 2014. Though crude oil prices were as high as they are today in Oct/Nov 2014, petrol and diesel attracted lower levies then. But ATF demanded a similar taxation like today even then, which is why ATF prices are not at record high. ATF was costliest in Oct 2013 at Rs 77,089/kl