NEW DELHI: Fuel prices finally halted their 16-day run of hikes on Wednesday, with state-run oil marketing companies (OMC) reducing petrol and diesel prices by a paltry 1 paisa each. However, the reduction is expected to be followed by a further moderation in fuel prices in India, since international crude oil rates have fallen sharply over the last week after Russia and Saudi Arabia indicated an increase in production. While there is a certain lag in the fall reflecting in daily prices in India, analysts say now that the first reduction has been made, a series of further reductions are expected in the coming days.
“The petrol and diesel prices in India are revised daily through a formula that is based on international benchmarks for gasoline (petrol) and diesel,” said an oil industry executive, requesting anonymity. “There is a certain lag in how international crude prices reflect on India rates. Now that prices have started moderating, they are likely to fall a little further organically even without government intervention,” he said.
Before Wednesday’s 1 paisa per litre price cut, OMCs had hiked prices for 16 consecutive days following the Karnataka polls. Prices had been frozen for 19 days during the run-up to the polls. In all, petrol prices went up by Rs 3.8 per litre and diesel by Rs 3.38 during that fortnight. Petrol in New Delhi now costs Rs 78.42 per litre and diesel Rs 69.30.
While the sharp decline in global crude oil prices might give some relief to Indian consumers, the government and OMCs, crude oil average price forecasts for the entire year are still high. For example, global financial services firm Goldman Sachs has reiterated its forecast of $82.5 per barrel for the third quarter of FY19, stating that “the robustness of the demand backdrop, and the rising levels of disruptions all set the stage for inventories to fall further”.
Clerical error gives false relief
The announcement of the first fuel price cut in weeks saw a clerical error give false relief to consumers, with OMCs initially stating that the reduction would be by 60 paise and 56 paise per litre for petrol and diesel respectively. However, Indian Oil Corporation later clarified that the actual reduction was 1 paise each and the earlier prices announced earlier was due to a “clerical error” which saw the prices for May 25 published as Wednesday’s prices.