Oil’s not well: petrol and diesel prices scale a new high

Dynamic pricing or daily fuel revision, which kicked in on June 16, 2017, continues to give heartburn to scores of motorists in India, on two-, three-, four and more set of wheels. As of today – October 3 –the retail selling price of both petrol and diesel has scaled a new high. In Mumbai, as per the price chart listed on the Indian Oil Corporation website, a litre of petrol will set one back by Rs 79.99 per litre, while tanking up on diesel costs Rs 62.82 per litre.

While the government has revealed an aggressive and ambitious road map for electro-mobility, consumer acceptance of electric vehicles remains abysmal and the traditional internal combustion engine still the preferred choice for motoring across town and country.

While the daily rise in fuel prices by a few paise does not immediately raise eyebrows, the cumulative effect of two-and-half-months of dynamic pricing has burnt a big hole in motorists’ wallets – between June 16 when petrol cost Rs 76.70 a litre in Mumbai and diesel Rs 59.90, to October 3, when they cost Rs 80 and Rs 63 respectively, fossil fuel users have to spend more on their daily commute.  

The fuel price rise is surprising given the paradox of globally falling crude oil prices. While international price for crude oil was at $55.91 (Rs 3,532) on Tuesday (October 2), average prices have been much lower, hovering around an average of $52.50 (Rs 3,317) per barrel. One bbl or barrel is the unit of volume for crude oil and petroleum products and equals 42 US gallons or 35 UK (imperial) gallons, or approximately 159 litres.

What is hurting the Indian motorist the most is the fact that globally crude oil prices are down. Since the government-introduced daily fuel price revision exercise began on June 16, 2017 retail petrol and diesel prices have scaled their highest levels since 2014, despite the fact global crude oil prices have nearly halved. In CY2014, petrol price averaged Rs 63.46 a litre in Mumbai; between April 1 to October 3, 2017 the average retail price of petrol works out to Rs 76.59 (+20.69%) a litre and Rs 60.32 for a litre of diesel (-5.6%).  

Can fuel prices go down?
The potential for petrol and diesel price reducing substantially is always there, but for the high level of excise duty (charged by the Central government) and Value Added Tax (by state governments). For instance, in Delhi, petrol costs Rs 70.88 a litre which includes Rs 21.48 excise duty and Rs 15.07 VAT. This adds up to Rs 36.55 a litre, which is more than half of the final price a motorist pays for petrol in the capital city.

Likewise, in Delhi, diesel costs Rs 59.14 a litre which includes Rs 17.33 excise duty and Rs 8.73 VAT (@16.75% + 25 paise per litre pollution cess) which adds up to Rs 26.06.    

The government has been making moves to reduce fuel prices, the most recent being the sourcing of crude oil from the US for the very first time. The first consignment of 1.6 million barrels landed in Paradip Port yesterday.

Meanwhile, the Indian motorist continues to have a tough time. What with additional GST cess, way too much of a bountiful rainfall which results in potholed and flooded roads, now he/she has to fork out a fortune for fossil fuels like petrol and diesel. Costly fuel means the hapless motorist has to worry about paying more money for his/her mileage rather than tracking true to automakers’ advertising mantra of ‘more mileage for your money’.