New Delhi (Agency): Oil prices have surged to a nearly 10-month high, approaching the $90 per barrel mark, following an agreement between Saudi Arabia and Russia to extend their voluntary production and export cuts until the end of the year. This development has significant implications for India, which relies on imports for more than 85% of its oil requirements. The rising oil prices make it less likely that petrol and diesel prices in India will return to market-driven rates in the near future.
Brent crude prices have witnessed a 6.5% increase in the past week, primarily due to Saudi Arabia’s decision to maintain its one million barrels per day reduction in oil supplies to the global market until December. Russia has also implemented voluntary export cuts, contributing to the price surge. As a result, Brent crude crossed the $90 per barrel threshold for the first time in the current year, reaching $89.67 per barrel on Wednesday.
India’s oil import basket, a combination of various crude oil types, has averaged $89.81 per barrel this month, up from $86.43 in August, according to data from the oil ministry. The basket had been within the range of $73-75 per barrel in May and June, raising hopes of a return to market-based pricing and a potential reduction in petrol and diesel prices.
However, with the recent increase in oil prices to nearly $90 per barrel, the difference between the cost and retail prices of fuels is expected to reappear. Public sector oil companies had been recovering losses incurred when crude oil prices surged in the past. While international oil prices and retail pump rates aligned in May, the upward trend in prices since then has eroded this balance.
India relies on imports for 85% of its oil needs, and its fuel pricing is closely linked to international rates. Petrol and diesel prices have remained unchanged for a record 17 consecutive months, with petrol priced at Rs 96.72 per litre in the national capital and diesel at Rs 89.62 per litre.
State-owned fuel retailers are supposed to adjust petrol and diesel prices daily based on a 15-day rolling average of international benchmark fuel prices. However, they have not revised prices since April 6, 2022. The last change occurred on May 22, when the government reduced excise duty to provide relief to consumers facing increased retail rates due to surging international oil prices.
Sources suggest that if international oil prices had remained in the $73-74 per barrel range, oil companies might have resumed daily price revisions. Higher oil prices would benefit domestic producers like the Oil and Natural Gas Corporation (ONGC), but the incremental revenues may be subject to a windfall profit tax. This tax, in the form of Special Additional Excise Duty (SAED), on domestically produced crude oil, was reduced to Rs 6,700 per tonne starting September 2, down from Rs 7,100 per tonne previously. A windfall tax is applied to domestic crude oil when global benchmark rates exceed $75 per barrel.