1. News

Russia-Ukraine Conflict: Petrol And Diesel Prices In India To Increase by Rs 20-22 per litre

Petrol, diesel prices in India to sky rocket as crude crosses $111 per barrel.

Chintu Das
Petrol Filling Station
Petrol Filling Station

The global rise in crude oil prices caused by the Russia-Ukraine situation is projected to raise petrol and diesel prices in India by Rs 20-22 per litre. A reduction in excise duties, on the other hand, may mitigate the impact on petrol and diesel prices to some extent, but not altogether. 

Brent crude oil price hit an almost 8-year high on Wednesday as a result of the crisis and worries of fewer supply. Furthermore, the Brent crude oil price is likely to remain high due to strong worldwide demand. 

As a result of the worry of supply shortages, crude oil prices have risen over 15% in the previous two days. Brent-indexed crude oil prices surged to more than $111 per barrel on Wednesday. 

For Tuesday, it had increased to $102 per barrel, up from $98 on Monday. Russia is now the world's third largest crude oil producer. Sanctions against Russia are expected to reduce global supply and impede growth. 

India, on the other hand, is a significant crude oil importer in the world, and the price range is a source of concern for it, as it may increase petrol and diesel selling prices by Rs 20 to Rs 22 if the OMCs opt to alter existing pricing. 

"If OMCs opt to raise fuel prices, the current surge in oil prices may now hold for a Rs 20 per litre jump in domestic petrol prices," said Tapan Patel, Senior Analyst (Commodities), HDFC Securities. 

Over the last three months, petrol and diesel prices have remained mostly steady. 

"If oil prices remain close to $100 per barrel, petrol prices are likely to rise by roughly Rs 9-12 per litre," Hetal Gandhi, Director of Crisil Research, said. 

"The increase in crude prices is projected to lead to a bigger increase in retail prices as the prices on the retail side have not experienced a proportionate increase," said Bhanu Patni, Senior Analyst, India Ratings and Research. 

"OMCs may have to resort to the hike in order to control their profitability." Furthermore, a general inflationary tendency will be triggered by the cascading effect of rising fuel costs. 

In January, India's major inflation indicator, the Consumer Price Index (CPI), which measures retail inflation, surpassed the Reserve Bank of India's target range. 

A 10% increase in crude oil prices contributes about 10 basis points to CPI inflation, according to industry estimates. 

"High crude oil prices, which have exceeded the $110 per barrel level owing to the escalating geopolitical situation in Ukraine, would clearly generate major inflationary headwinds for the Indian economy," said Suman Chowdhury, Chief Analytics Officer, Acuite Ratings & Research. 

"It's worth noting that there hasn't been a change in retail fuel prices since November 21, when crude oil was around $80 per barrel. While the oil PSUs are now absorbing the losses, there is a good chance that retail prices will rise in the near future. However, it is expected that some of the rise will be offset by a second drop in excise duty, which occurred on November 21." 

"If the Government of India rolls back excise tax on petrol and diesel to pre-pandemic levels, a portion of the needed hike in pump prices can be offset, although at a fiscal cost of Rs 92,000 crore," Aditi Nayar, Chief Economist, ICRA, said. 

Last week, the Centre stated that it is willing to support initiatives involving the release of Strategic Petroleum Reserves in order to reduce market volatility and stabilise crude oil prices. 

At three places, Visakhapatnam, Mangaluru, and Padur. India has created strategic petroleum reserves with a capacity of 5.33 million metric tonnes (MMT) or 38 million barrels of oil (TN). 

In 2021, India has agreed to join the global coalition of major oil consuming countries by agreeing to release oil from its strategic oil reserve to alleviate the supply restriction that has kept crude prices high. 

It agreed to release 5 million barrels of crude oil from its strategic reserves. 

Share your comments

Subscribe to our Newsletter. You choose the topics of your interest and we'll send you handpicked news and latest updates based on your choice.

Subscribe Newsletters