Fuel prices make new record as crude edges up again

NEW DELHI: Fuel prices flared up again on cue from international crude Tuesday, with petrol price hitting a new high in Delhi at Rs 85.20 and diesel making a record in Mumbai at Rs 82.13. But the government blamed “lower production by oil exporting countries due to Covid-19 pandemic”, deflecting attention from the fact that high taxes are amping up the impact of rising crude prices.
In Delhi, diesel was seven paise below the October 4, 2018 record of Rs 75.45. In Mumbai, petrol climbed to Rs 91.80 a litre as international oil prices edged up to $54.92 a barrel on news of China refinery output rising 3% and optimism over US president-elect Joe Biden’s $1.9 trillion pandemic package.
Crude prices were also buoyed by expectations of Saudi Arabia’s additional supply cuts in the next two months would draw down global inventories by more than a million barrels a day in the Jan-March period.
While consumers continued to pay through their nose, there was no sign the Centre or state governments were considering any reduction in the hefty taxes they levy on motor fuels, which amp up the impact of rising crude.
Oil minister Dharmendra Pradhan on Monday told reporters in Bhopal that pump prices were rising because of lower production in oil-producing nations due to the coronavirus pandemic. The lower production had caused an imbalance between supply and demand.
“Oil producing countries stopped production or reduced it during the coronavirus epidemic. A pressure on fuel prices was seen due to this imbalance in demand and supply. A few months ago, crude oil prices were $35-38, which has gone up to $54-55,” he had said.
Crude has been on an upswing on Covid-19 vaccine rollout, Saudi offer of an additional million barrel per day production cut and an agreement among OPEC-plus grouping to hold the output level in February.
But part of the blame for skyrocketing pump prices also lies with the high Central excise and state taxes, which amp up the impact of increase in crude price. Taxes make up over 60% of retail prices in Delhi, considered the benchmark market, and more in states with higher VAT such as Maharashtra.
The Centre had raised excise duty on petrol cumulatively by Rs 13 per litre and diesel by Rs 16 in two tranches on March 16 and May 5 to suck out the benefit of historic crude price collapse as the pandemic shut down economies around the world.
But fuel retailers did not raise pump prices and adjusted the excise hike against higher margins due to falling crude. But as states followed with VAT hikes, retailers passed it on by raising prices. Yet, consumers largely remained unaffected since only essential service vehicles were out on roads.
When fuel prices had last touched record high on October 4, 2018, the government had cut excise duty on petrol and diesel by Rs 1.50 per litre in a bid to ease inflationary pressure and boost consumer confidence. Alongside, state-owned fuel retailers cut prices by another Re 1 a litre, which they recouped later.
But now that demand is back to near-normal, consumers are paying through their nose because the Centre and states are continuing with the higher excise.

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