Slowly and gradually Crude oil prices are declining since the end of September at global level but Domestic prices of Petrol and Diesel remain the same. During this period, Crude oil price has reduced by $5 barrel since November 2023.
Basically, momentum of Exchange rates, International Petrol and Diesel prices (Crude oil price) and Charges of Oil Marketing Companies for marketing margin are dependent variables to derive Domestic prices. But, Global Crude oil price is a significant factor for domestic price by considering its average of 2-3 weeks. Similarly, demand and supply are also important to consider because there will be an impact on price with consumption of fuel. After relief in government restrictions, fuel consumption has increased majorly in Transportation.
Nowadays, Crude oil prices are lying between $72-78 per barrel and if price increases to $1 barrel then expected impact on retail price of petrol and diesel will be 60-55 paisa respectively; rupee depreciation will be 65-60 paisa for exchange rate.
However, Oil Marketing Company’s Margin and crude oil price are inter-correlated, as it depends on the cost of crude oil. Means, if crude oil prices are high, marketing margin will be less or vice-versa. So, at this stage, Oil marketing companies are getting lifted to recover the previous loss when crude oil prices were high. Thus, this can be the reason why domestic price has remained the same.
Impact of Crude Oil Price
- On an average India is importing more than 80% of crude oil (4581.071 Barrel/Day as of 2022) from OPEC+ countries (Organization of Petroleum Export Countries), which is a cartel of countries to uniform petroleum policies for fair and stable price to petroleum producers. And this international crude oil production, demand-supply will have adverse effects on retail prices in each country.
- As India has major imports of crude oil, high crude oil price may lead to depreciation of domestic currency. Direct impact of crude oil price is on Current Account due to import and export, as parallel to this, India is sixth largest exporter of petroleum products, high price may result into current account deficit (Fiscal deficit – More import less export).
- Crude oil is used for Petrol, Diesel, Jet Fuel, Paint, Packaging, Liquefied Petroleum Gas (LPG), Fuel for Large ships, Refrigerator, Power, Clothes drying, farm electricity and many more. So, Each product has a huge impact on its Prices.
- Crude oil is essential raw material for Paint, Packaging, Oil & Gas, Power, Tyre, lubricants etc, increase in price means increase in the cost of production. This situation might have turned into Inflation in the economy.
- Transportation sector has extensive usage of oil. Ultimately the impact of high crude oil prices will be turned into a major hit in the industry. Moreover, India as a third largest Energy Consumer relies on various resources to meet energy demands.
- But on the other hand, companies which are engaged in oil exploration (Oil & Energy sector) get a benefit from high crude oil prices. Because high prices lead to increase in production, companies will start to spend more money on equipment, research and development and supply.Â
Despite global crude oil price declines, domestic fuel prices in India remain unchanged. Interconnected factors, including oil marketing margins and import reliance, contribute to this disparity, impacting inflation and various industries.
