Petrol Prices in India dip by Rs. 2, but still costly than a beer

Often when elections near, you get some cheer! Here, have some beer!

Beginning Wednesday, the price of petrol will fall in Delhi by Rs 2.22 a litre and by Rs 2.34 a litre in Mumbai.

It is not very clear from all explanations we have got why this price dip now? The Minister of State for Petroleum RPN Singh states that the dip is in line with the crude oil prices and not a political decision. Ever since de-control of petroleum prices, this is the first time ever all three PSU petroleum marketing companies have reduced prices. I still have my own reasons to believe that it is not the prices; it’s the votes that have forced the dip.

While last time around, the oil marketing companies had asked the media not to go by the international crude oil prices but see Indian crude baskets. The minister vehemently defended saying Oil companies have turned up to the media and have made it public that they will not make any profits. Pressure from all corners, including its strong ally, forced government to take this step.

According to a report by a leading Indian News channel, Mukesh Ambani’s Reliance Petroleum sells most of its refined petroleum products out of India, which means its products, are exported rather than used for the domestic consumption. I am not sure about the authenticity of this news report, but if it is any true, I need to understand why?

Globally, crude oil prices have gone up to 110$ per barrel from 80$ per barrel last year. At the same time, Rupee has depreciated against $ to reach Rs. 50 per US Dollar. This hike is caused by reduction of crude oil supply from Libya and other factors. The linked excel sheet will give you a prospective about how the Crude Oil prices have fluctuated.

Global Crude Oil Prices from 1978. (Excel, Size: 387KB)

Now with decontrol is in place, we have to get used to see frequent changes in prices which will reflect (according to Ministry and Oil companies) true value of a one liter of petrol that goes into your vehicle.

Psychological Factor for our domestic market is any hike in fuel prices will in turn inflate prices of all essential commodities. Irrespective of the fact that hike might only be affecting Petrol. We all know that India’s transport sector relies on Diesel for transportation and any rise in petrol should never affect the prices for this sector. But eventually it does. Something I do not understand is how we can allow this to happen when diesel is still subsidized and we, the tax payers pay for it.