New Delhi : Consumers can anticipate a decline in fuel prices as oil once again becomes a favorable factor for the government, providing room to inject funds into the public’s pockets and alleviate the cost of living before seeking a third term.
On Tuesday, credit rating agency ICRA revealed that the significant drop in oil prices since September of last year has boosted the marketing margins of state-run fuel retailers, who dominate 90% of the market. The margins have reached Rs 11 per liter on petrol and Rs 6 on diesel, reversing the double-digit losses incurred during periods of elevated crude prices since February 2022.
The return to profitability is attributed to benchmark crude prices staying below $80 per barrel. This is driven by a subdued demand outlook and increased production in Libya and Norway, partially mitigating concerns over a broader conflict in West Asia. Petrol and diesel prices have been stable since May 2022 when the government reduced excise duty for the second time to mitigate the impact of crude surpassing $100 per barrel after the Ukraine conflict.
Fuel retailers have experienced fluctuating profitability with the rise and fall of oil prices. However, pump prices have remained unchanged, even during periods of profitability when selling petrol and diesel was lucrative.
While fuel retailers recorded profits between July and September 2023 and again since October, they refrained from reducing pump prices, ostensibly to recover past losses. In contrast, private retailers like Jio-BP and Nayara, backed by Rosneft, lowered petrol and diesel prices by Re 1 per liter.
The decision was more politically motivated than economic. During that period, the International Energy Agency and brokerages projected a tightening oil market toward the end of 2023 and early 2024. Retailers were allowed to accumulate a profit buffer to absorb potential losses if crude prices surged, as projected. Cutting prices then might have made it challenging to raise them again before the Lok Sabha polls if oil prices increased as anticipated.
Contrary to expectations, oil prices have remained stable. The latest International Energy Agency monthly oil report forecasts global oil supply outpacing demand this year, indicating ample supply in the market. The OPEC+ grouping has also projected a balanced market. With the new government having the next 12 months until March 31, 2025, to strategize, this appears to be an opportune time—both economically and politically—to reduce fuel prices.
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