Reason for the Petrol Price Hike in India

The price of oil was just a little higher on Tuesday, April 26, after soaring in the previous session amid fears that ongoing COVID-19-related lockdowns that have been in place for China could eat away at demand, and also as the US dollar climbed to a record high of two years.

Brent crude futures traded at $102.57, up 25 cents or 0.2 per cent. US West Texas Intermediate contracts rose to $98.70 at 16 cents or 0.2 per cent as of 0002 GMT.

In China, lockdowns to fight COVID in Shanghai are now in the fourth week. The demands for large-scale testing, including in Beijing’s biggest shopping district, have sparked concerns of similar lockdowns in Shanghai.

What Is The Petrol-Diesel Price Hike?

Oil prices fell on Wednesday as the soaring dollar increased the cost of barrels and as outbreaks of coronavirus cloud the economic outlook of China, the world’s largest importer of crude oil.

In addition, U.S. government data revealed that crude stocks rose slightly this week as fuel inventories decreased, indicating the world’s biggest oil producer.

Brent crude futures dropped 4-cents and reached $104.95 one barrel at 10:00 a.m. (EDT) (1453 GMT). U.S. West Texas Intermediate crude futures fell 25 cents and reached $101.45.

NYMEX ultra-low sulphur diesel futures increased 9.2 per cent to reach $4.47 per gallon, the highest level since Poland declared Russia warned that the supply of gas would cease on Wednesday.

China’s central bank has announced that it will increase policies to support the economy. Any stimulus will increase the oil demand.

“Oil traders are placing Beijing lockdown concerns behind them and are instead looking forward to more stimulus via China,” said Phil Flynn, Analyst of Price Futures Group.

The Chinese capital Beijing has expanded COVID-19 mass testing to a large portion of the city’s 22 million people as the city anticipates the same lockdown as Shanghai’s strict restrictions.

The Main Reason Behind Petrol Price Hike In India

The tax burden is contributing to the record-breaking prices in India. This year, the Central Government raised taxes on petrol by Rs 13 per litre and diesel by Rs 16 per litre to increase revenues to make up for the slow down in the economy during the pandemic. 

Fuel prices are set to become more expensive in India as another price increase was announced on April 2, 2021, when diesel and petrol prices increased by an average of 80 paise per litre. This is the 10th price hike that India has experienced this year. After there was no change in prices between November 2021 to March 2022, it has also been assumed that the increase in prices was because of the Russia-Ukraine war, resulting in numerous sanctions against Russia and so increasing prices of petrol diesel.

India’s Finance Ministry sources have confirmed they are not looking at lowering the taxes back to the pre-COVID-19 levels since it needs to fund various programs, including those that offer free food to the less fortunate and the COVID-19 national vaccination program.

The increasing crude oil cost and the increased taxation have led to the cost of diesel and petrol reaching new records across the country in 2022. The price of petrol in New Delhi was Rs 105.45 per litre on April 23, an increase of Rs 10 per litre over the last month, while the price of diesel was at Rs 96.6 per litre on April 21, up by Rs 10 per litre over the same last month.

The petrol consumption rose by 9 rupees per year in April 2022. However, diesel consumption will remain below 10 rupees/month in 2022. Diesel accounts for 38 per cent of the consumption of petroleum products across India and is the primary fuel in industries and agriculture.

What Officials Are Saying About The Hike In Petrol And Diesel Price?

The government claims to have reached out to major oil-producing countries to encourage them to increase crude oil production. The Union Minister of Petroleum Hardeep Singh Puri has said that the main reason behind the petrol hike in India and the high price for crude oil in the international market is because “the crude oil supply was being held below demand”, and the government believes that this “is intended to be an opportunity to increase the price.” 

India has long asked the Middle East countries to eliminate their “Asian cost”, as essential oil producers have higher prices for India compared to the US and European countries. Despite a 40 cents per barrel reduction in the selling price of light crude sold to Asia, Saudi Arabia is still offering $1.30 over the benchmark price for light crude sold to India compared to a $2.4 discount off the benchmark price charged to European customers.

Conclusion

The government could decide to minimise the effect of rising crude oil prices for consumers by reducing excise duties on petrol and diesel. Central and state taxes comprise about 43 per cent of retail prices for petrol and 37 per cent of the cost of pumping diesel in Delhi. In general, diesel and petrol prices are reviewed every day, in line with an average of 15 days of international benchmark prices for petroleum-related products.

The conflict between Russia and Ukraine and attacks on gas and oil infrastructures within Saudi Arabia have led to more concerns over possible interruptions in crude oil supplies, which has pushed up oil prices.