Why is there a Discrepancy in Crude, Petrol & Diesel Prices?

Although the crude rate is 3 dollars lower than January 2018, the price of petrol is Rs 17 higher.

2 min read
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If crude is $60, then why are petrol prices in Delhi Rs 69; especially since petrol prices in the national capital were Rs 57 when crude was $63 in January 2018?

Although the price of crude is 3 dollars lower than what it was in January, the petrol prices are Rs 17 higher.

Even if the status of a weak rupee against the dollar is factored in, petrol prices should not be higher than Rs 60. According to reports, the government is still planning to increase excise duty on petrol by Rs 2, which means that even if crude becomes cheaper, people will not get petrol and diesel at lower rates.

It’s not just the government, but the oil companies are also benefiting by Rs 6 per litre on petrol and Rs 5 per litre on diesel. It means that if oil companies had not have received this profit, petrol would have been cheaper by Rs 5.

Crude down by 35%, Petrol Only 10%

Even though the rate of crude is around $60, petrol prices in Delhi and Mumbai are still Rs 75 and Rs 80 respectively.

Till 15 October, oil companies were profiting Rs 0.75 per litre petrol, but in November, the profit increased to Rs 6. Similarly for diesel, the profit margin went from Rs 1.4 per litre to Rs 4.64.

How are Petrol-Diesel Rates Decided?

  • Crude prices internationally
  • Value of Rupee against Dollar
  • 15-day average of crude
  • In October, rupee was 74 against dollar. Now it is below 71. The stronger the rupee is, the cheaper is the import of crude.

Petrol and Diesel Should Be Cheaper by 27% and 18% Respectively

Although the petrol and diesel prices are decided by oil companies, diesel rates should currently be lower by Rs 6.

According to that logic, diesel prices in Delhi should by lower than Rs 63 and Rs 70 in Mumbai. But diesel and petrol only went down by 8% and 10%.

On 4 October, crude was near $80, but petrol was Rs 84 per litre and diesel was Rs 75.45 per litre in Delhi. Now crude is near $59, but petrol is still Rs 74 and diesel Rs 70 per litre.

Oil Companies Gained the Most

Profit margins of oil marketing companies have increased the most. According to a report by the BloomberQuint, oil companies made 5 times the profit margin on every litre of petrol and diesel.

Shares of Oil Marketing Companies Increased

Oil marketing companies' shares witnessed a 40 percent increase after the hike in their profit margins.

Hindustan Petroleum's shares hiked from Rs 178 on 8 October 2018 to Rs 246 on 27 November. Bharat Petroleum's value of shares increased from Rs 265 to Rs 334 in the same time period.

(This article was first published in Quint Hindi and has been translated by The Quint)

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