Retail prices of petrol, diesel may not be cut due to volatile oil market

International crude prices may be near a seven-month low but with oil markets still volatile, and state-owned oil refiners having to offset of losses amounting to almost 18,500 crore (on account of selling below cost in this period), there’s unlikely to be any change in retail prices of fuel, three people aware of the development said.

But the government will review prices of crude oil and petroleum products such as petrol, diesel and aviation turbine fuel (ATF) next week to also align windfall profit tax on these products with their market rates and may also take a call on retail pricing, they added requesting anonymity.

International oil prices are volatile. Benchmark Brent that fell to $88 a barrel on Wednesday — lowest in about seven months – and remained below $90 on Thursday at $89.15 per barrel on demand concerns (Chinese slowdown and tightening of global interest rates). But market discounted those concerns on Friday and Brent crude rose again 3% at $92 a barrel in the intraday trade.

According to one person, public sector oil marketing companies (OMCs) are still losing about 5-6 per litre on diesel while there has been no revenue loss on petrol. In fact, companies are making about 2-3 per litre margin on retail prices of petrol, he added.

“While a reduction in windfall tax on domestically produced crude is a possibility provided international crude prices remain soft till September 14, the tax is expected to continue on exports of diesel and ATF,” a second person said.

As per the usual practice, the windfall profit tax on petroleum that was imposed on July 1, is revised fortnightly. In the fourth review, the Union government on September 1 raised the levy on domestically produced crude oil by 300, to 13,300 per tonne, and increased the levy on exports of diesel by 6.50 to 13.50 per litre and on ATF by 7 to 9 a litre. Petrol, which initially attracted 6 a litre tax on July 1, was exempted from this levy subsequently as revenue losses on the fuel stopped.

It is, however, unlikely that retail prices of petrol and diesel would be reduced at this stage because of precarious financial position of public sector OMCs , the three people mentioned above said.

The three state-run OMCs – Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) — have paused daily changes in auto fuel rates since April 7, leading to a combined net loss of 18,480.27 crore in the first quarter of current financial year as compared to 9,238.02 crore net profit in the same period previous year.

The petroleum ministry, IOC, BPCL, and HPCL did not respond to an email query on this matter.

Petrol is currently sold at 96.72 per litre and diesel at 89.62 in Delhi and changes in their rates since April 7 was mainly due to reduction in central and state taxes. The Centre slashed excise duties on petrol and diesel on May 22 and many other states followed the suit reducing the value-added tax (VAT) on the transport fuels to calm inflation.

“The government was forced to impose windfall tax because private refiners were exporting petrol and diesel for abnormal profits while their pumps within the country were running dry. It came as a blow to [public sector] OMCs, which had to cater to even their customers by supplying highly subsidised petrol and diesel,” a third person said.

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