NEW DELHI: Global benchmark crude rocketed to $139 per barrel, the highest since July 2008, giving the government the handle to allow oil companies to start raising fuel prices gradually as the state polls ended on Monday.
People in the know said the general thinking in the government indicates state-run fuel retailers may be allowed to raise prices by Rs 5-6 per litre in small doses to soften the impact.
For the time being, the retailers will absorb the remaining losses, pegged at about Rs 12 per litre, for the time being, offsetting them against inventory gains and refining margins.
An immediate tax cut is not on the table, though it may happen at a later stage if crude remains at current levels for a long time. In that case, an equitable burden-sharing formula may be considered where the centre and states give tax relief, oil companies absorb some losses and so the burden on consumers is minimised.
There is an opinion that the retailers may be asked to wait till the poll results are out on March 10 and governments are formed before starting the daily price revisions.
Prices have not been raised since November 4, when the Central and state governments cut taxes to give relief after oil breached the $83 per barrel mark. The ‘Indian Basket’, or the mix of crude bought by Indian refiners, has since shot past $117 per barrel and stood at $111.61 on Friday in tandem with Brent.
The rupee, industry watchers said, could prove to be the fly in the ointment and harden the pinch. The Indian currency sank to its lowest level ever on Monday, falling by almost 77 against the dollar. The depreciation will increase the under-recovery enough to impair the profitability of retailers when they offset the under-recovery on petrol and diesel.
Fuel prices are linked to their international benchmarks and the dollar exchange rate, whereas crude prices are a factor in deciding the spread.
Though fuel pricing is deregulated, the government controls the market through informal diktats to state-run retailers who control 90% of the market.
Oil prices jumped after news of impending US and European sanctions on Russian energy exports, which account for 8% of global supply and 35% of Europe’s consumption.