Both diesel and petrol prices, which have been on a freeze over the last four months ahead of the assembly polls in Indian states like Uttar Pradesh, may require to be increased by more than Rs 12 per litre by March 16 in order to break even on the fuel retailers. International crude oil prices inflated over $120 a barrel for the very first time nearly a decade on March 3 before retreating a little to $111 on March 4; however, the gulf between retail and cost rates has only broadened.
As the international oil prices - referring to which domestic fuel retails are directly based on - going up over the past two months, fuel retailers that are state-owned "need a massive price hike of Rs 12.1 per litre on or before March 16 this year in order to breakeven and a price hike of Rs 15.1 is required" after adding margins for oil firms, Business Standard quoted an ICICI Securities report as saying.
According to information from the oil ministry, the basket of crude oil India buys rose to USD 117.39 per barrel on March 3, the highest since 2012, according to information from the Petroleum Planning and Analysis Cell (PPAC). This compares to an average of $81.5 per barrel price of the Indian basket of crude oil at the time of freezing diesel and petrol costs in early November 2021.
The seventh and last phase of polling for the Uttar Pradesh legislative assembly is set to take place on March 7, and the counting of votes is scheduled for March 10.
"Auto fuel net marketing margin is minus Rs 4.92 per litre on March 3, 2022, and Rs 1.61 in Q4 FY22-to-date," ICICI Securities stated. It also added that the net margin might also plummet to minus Rs 10.1 per litre on March 16 and minus Rs 12.6 on April 1 at the latest international auto fuel prices.
Fuel Prices On All-Time High Amid Russia-Ukraine War
Since the start of Russia's full-scale military invasion of Ukraine on February 24, oil prices have been on the boil ever since. The prices spiked in central Asian nations on fears that gas and oil supplies from energy giant Russia might get disrupted amid the ongoing crisis in Ukraine or retaliatory western sanctions.
President Vladimir Putin's Russia makes up for a third of Europe's natural gas and approximately 10 per cent of global oil production. Nearly one-third of Russian gas supplies to Europe usually transit through pipelines crossing Ukraine.
However, for India, Russian supplies account for a very small percentage. While India imported 43,400 barrels every day of oil from Russia in 2021 (approximately 1 per cent of overall its imports), coal imports from Moscow at 1.8 million tonnes in 2021 account for 1.3 per cent of total coal imports. Furthermore, India also buys 2.5 million tonnes of LNG from Russia's Gazprom every year.
While supplies at the moment seem to be of little worry for India, it is the prices that are a cause of concern.
Inflating Petrol & Diesel Prices In India
Domestic fuel rates - which are directly linked to international oil prices as India imports in 85 per cent of its oil requirements - have not been changed for a record 120 days in a row.
Diesel is priced at Rs 86.67 and petrol prices at Rs 95.41 a litre in Delhi. These prices are on the back of accounting for the excise duty cut and a reduction in the Value Added Tax (VAT) rate by the state government.
Before these tax reductions, petrol prices had already touched an all-time high of Rs 110.04 a litre, and diesel prices went up to Rs 98.42. This rate corresponded to Brent, soaring to a high of $86.40 per barrel on October 26 last year. Brent was $82.74 on November 5 last year before it came down and touched $68.87 a barrel in December 2021.
Also Read: Hindu Sena Backs Putin's Ukraine Invasion, Puts Up Posters Advocating For 'Akhand Russia'