India freezes fuel prices amidst rising global crude rates, ET EnergyWorld

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New Delhi: Despite the sharp rise in global crude oil prices, India has managed to keep the petrol and diesel prices remained static since May 2022. Experts attribute this to the upcoming elections in a few states and the general elections in early 2024, indicating political considerations might be outweighing economic imperatives.

Expert takes

Arun Kumar, Partner at INDUSLAW, highlighted that Indian Oil Marketing Companies (OMCs) could still be capable of sustaining this increase, given that they had not discounted retail fuel prices even when global crude prices had fallen earlier. “If crude prices continue to remain high for the next two quarters, then a price rise may be in the offing, after the elections,” he said.

Prashant Vasisht, Senior Vice President & Co-Group Head – Corporate Ratings at ICRA Limited, said, “The retail prices of auto fuels have been frozen since May 2022 in a bid to insulate from the inflationary impact of high crude prices.”

The numbers speak

Global crude oil prices have surged from around $75 per barrel to above $94 per barrel since the beginning of July. Analysts expect the crude prices to cross the $100 per barrel mark in the next two months.

Crude oil prices are forecast to reach $93.69 per barrel by the end of the current quarter and rise to $101.81 in 12 months time, according to projections from Trading Economics‘ global macro models and market analysts.

Economic repercussions on OMCs and India

The stock market already reflects the challenges OMCs are facing. “OMCs are incurring marketing losses on the retail sale of diesel,” Vasisht from ICRA Limited pointed out.

Meanwhile, India, a major importer of crude oil, risks widening its current account deficit. “An increase in crude oil prices would adversely impact the current account deficit as it increases the import bill of the country,” Vasisht added.

Arun Kumar of INDUSLAW elaborated on how rising fuel prices have a domino effect on inflation levels in India. “For the common man, growing prices of petrol and diesel impact prices of vegetables, food grains, etc. India is already facing high inflation levels, and if crude oil prices increase, it is going to be a challenge for both the Union Government and the common man,” he said.

The road ahead

Experts suggest that while freezing the retail fuel prices serves as a short-term relief for consumers, it puts the financial health of OMCs at risk. The government’s strategy to balance the election prospects and economic realism remains to be seen, particularly if crude prices continue their upward trend after the electoral dust settles.

Meanwhile, oil prices rose on Tuesday for a fourth consecutive session as weak U.S. shale output spurred further concerns about a supply deficit stemming from extended production cuts by Saudi Arabia and Russia.

Global oil benchmark Brent crude futures were up 41 cents, or 0.43%, to $94.84 a barrel by 0751 GMT. After breaching $1 gains, U.S. West Texas Intermediate crude futures were up 92 cents, or 1.01%, to $92.40. Prices have gained for three consecutive weeks, and both benchmarks are around 10-month highs.

  • Published On Sep 19, 2023 at 05:20 PM IST

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