Crude oil prices have recently fallen below the significant $100-per-barrel threshold, marking a reduction following weeks of volatility due to the Iran conflict. As of 11:15 am, West Texas Intermediate (WTI) crude traded at $90.80 per barrel, down by 6 per cent or $5.80. Meanwhile, Brent crude decreased by 5.64 per cent to $97.70 per barrel, also reflecting a decline of $5.84.

Despite this downward trend in global oil prices, Indian consumers continue to experience consistent hikes in petrol and diesel prices. In less than two weeks, fuel prices have been raised four times, with petrol now approximately Rs 8 more per litre. This situation has led many to question why the prices are rising when crude oil costs are decreasing globally.

The explanation involves multiple factors, including a combination of postponed price adjustments, currency depreciation, tax policies, and the recovery of losses by state-run oil firms.

Previous High Prices Impact Current Costs

Although crude oil is now priced below $100, it is important to note that prices had surged to nearly $120 per barrel recently. This spike occurred during heightened tensions due to concerns regarding potential disruptions in the Strait of Hormuz.

At that time, Indian oil marketing companies did not pass the full extent of rising costs onto consumers, opting instead to maintain lower prices. Now that crude prices have fallen, these companies are attempting to recuperate earlier losses, a primary factor contributing to the ongoing increases in petrol and diesel prices.

While the current pricing levels might seem favourable in comparison to previous peaks, $100 per barrel remains historically high for an oil-importing country like India. Approximately 85 to 90 per cent of India’s crude oil needs are met via imports, meaning even small fluctuations in global oil prices considerably affect the country’s import expenses and fuel pricing.

Influence of Rupee Value and Taxation

Fuel pricing in India is not solely contingent on crude oil prices; the strength of the Indian rupee against the US dollar plays a significant role. Since oil transactions occur in dollars, a weakening rupee renders the importation of crude oil more expensive, even if global prices decline.

In recent months, the rupee has depreciated considerably, reaching near record lows of nearly Rs 97 against the dollar, although it has since shown minor recovery. This depreciation has inflated the cost to Indian refiners for importing crude oil.

A substantial portion of the retail pricing structure of petrol and diesel is influenced by taxes, including central excise duties and state VAT. These tax components, along with dealer commissions and transportation costs, are added before the fuel is sold to consumers. As noted by experts, the heavy taxation on fuel denotes that price changes do not align directly with fluctuations in crude oil rates.

Furthermore, oil marketing companies have absorbed significant losses during previous high crude price periods when retail prices remained stable. Currently, companies are in the process of recovering these losses, which explains the recent rounds of petrol price increments.

In summary, while crude oil prices may currently be below $100 amidst geopolitical discussions, several factors, including currency dynamics, taxation, and previous financial recoveries by oil marketing companies, are contributing to the persistent high fuel costs in India. The interplay of these elements illustrates the complexities behind fuel pricing in the country, where immediate relief is not guaranteed even when global crude prices fall.

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