State-run oil companies are considering a significant reduction in petrol and diesel prices next month following their anticipated record net profits exceeding ₹75,000 crore for the third quarter. The decision comes as their costs for acquiring crude oil decrease, presenting an opportune moment for a price adjustment.
Price Freeze Since April 2022
Public sector fuel retailers have maintained stable prices since April 2022, and a comprehensive pricing review is now imminent. Officials suggest that the companies may have a margin of ₹10 per litre, potentially benefiting consumers. The move is seen as a potential measure to alleviate inflation concerns, especially in the lead-up to the 2024 General Elections.
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Petrol Diesel Price – Expected Reduction of ₹5-10 per Litre
After releasing their third-quarter results by the end of the month, oil marketing companies (OMCs) may deliberate on reducing petrol and diesel rates by ₹5 to ₹10 per litre. The decision, to be made in consultation with stakeholders, aims to balance current profits with a provision for potential future spikes in international oil prices.
Government Stance and OMCs’ Profits
While the government is the majority stakeholder in all three OMCs (Indian Oil Corporation, Bharat Petroleum Corporation Ltd, and Hindustan Petroleum Corporation Ltd), the firms have shown significant profits in the first half of 2023-24, surpassing ₹57,000 crore. The impending reduction in fuel prices aligns with a broader strategy to manage inflation and address consumer concerns.
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Petrol Diesel Price – Inflation Concerns and RBI Limits
With India’s retail inflation touching a four-month high of 5.69% in December 2023, the government aims to keep it below the Reserve Bank of India’s upper tolerance limit of 6%. The potential reduction in fuel prices serves as a proactive step to mitigate inflation concerns, particularly in the wake of rising food prices.
Pricing History and Market Trends
OMCs froze petrol and diesel rates on April 6, 2022, amid global oil price volatility. Subsequent reductions in excise duty and a decline in international oil prices allowed the companies to sustain profits. The ongoing downtrend in fuel rates is attributed to lower crude oil prices, providing room for further price cuts.
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Petrol Diesel Price – Windfall Tax Reduction and Softening Crude Prices
The windfall tax on exports of diesel has gradually decreased from ₹6 a litre since September 2023 to zero. The levy on petrol was removed in July 2022, and on aviation turbine fuel (ATF) from March 2023. Additionally, the tax on domestically produced crude oil was reduced to ₹1,700 per tonne due to softening international oil prices.
