With global crude prices falling to a nearly six-year low, oil marketing companies on Friday reduced petrol prices by Rs2.42 a litre and diesel by Rs2.25 a litre. The benefit of reduction in prices was limited due to a fourth consecutive excise duty hike by Rs2 per litre on both diesel and petrol. This is the ninth straight reduction in petrol prices since August and fifth in diesel since October.
The fourth hike in excise duty in the last two months denied the passage of the benefit to customers of Rs7.75 a litre in petrol and Rs6.50 a litre in diesel. The four excise duty hikes will result in about Rs20,000 crore additional revenue for the exchequer this fiscal and will help the Government meet its fiscal deficit target of 4.1 per cent of the GDP.
In Delhi, petrol will cost Rs58.91 a litre, the lowest in 44 months, as compared to Rs61.33 a litre now. Similarly, diesel will cost Rs48.26 a litre in Delhi, the lowest since April 2013, as against Rs50.51 currently.
The Government had last raised the excise duty on petrol and diesel by Rs2 per litre each from January 2. Prior to that, the tax was hiked by Rs1.50 a litre each from November 12 and Rs2.25 per litre on petrol and Rs1 on diesel from December 2. Global crude oil prices have fallen almost 50 per cent since June 2014, the most since the 2008 financial crisis, as supplies swelled.
However, the oil marketing companies are still keeping some cushion to negate the losses due to inventory. B Ashok, chairman of Indian Oil Corporation, the nation’s largest fuel retailer, justified the decision not to revise rates saying oil firms were saddled with huge inventory which need to be compensated.
The crude oil that is being processed currently in refineries is one that was bought about six to eight weeks back when rates were higher than present prices. By the time, it is processed and marketed its market value would have come down, resulting in inventory losses, totalling about Rs12,000 crore.
“There is a huge drop in crude prices which is having a tremendous impact on our inventories, it’s a cash loss. We are paying much higher price for the crude and today we are processing the crude at a much lower price and passing it. We are taking our decision based on that and we think we have been doing the right thing,” Ashok said.