Crude Oil Prices, Government Pressure, and Fuel Policy in India

Crude oil prices are still hovering above a hundred dollars a barrel, but the government is really under pressure. It’s been taking a hit—about one thousand crore daily—for the last seventy days since that whole US-Israel-Iran mess kicked off.

You read in the Economic Times that now that the elections are done, the government is just staring at some really tough economic choices.

Then there’s the immediate concern about fuel. An India Today TV report cited some sources saying petrol and diesel prices are going up before May 15th because the oil marketing companies, the OMCs, are bleeding money.

India’s the only big economy that hasn't just pushed those higher petroleum costs onto the public, even with the oil prices climbing. China, the UK, Norway, Germany, the Netherlands—they’ve already hiked their petrol prices by up to twenty-seven percent. Japan, South Korea, Spain, Italy, they went even higher, thirty percent or more.

Remember when crude oil hit $126 during the start of the Iran conflict? The government just absorbed it.

But the OMCs? The losses are huge. As of the end of April, they were down as much as thirty thousand crore. That number might jump to fifty thousand crore by June. And don't forget the gas losses—that’s another twenty thousand crore.

India does have five point three three million tonnes of strategic petroleum reserves. That’s enough for about fifteen days. But the plan is to push that up to thirty days, matching Japan and South Korea. They need around twenty thousand tonnes of imports every single day just to keep up.

And it’s not just the crude. The oil-importing companies are also paying twenty to thirty percent more for maritime insurance premiums. That just adds to the squeeze.

The whole fiscal weight is pointing straight at raising fuel prices. But that’s the tricky part. Any hike means everything else gets squeezed. Transportation costs shoot up instantly.

Sujata Sharma, the joint secretary in the Petroleum and Natural Gas Ministry, said something on May 4th. She stressed that there are no plans to extend financial support to the state-owned fuel retailers for the losses they’re taking selling petrol, diesel, and aviation turbine fuel below cost.

Indian Oil Corporation, BPCL, HPCL—they are suffering massive losses selling petrol and diesel. Why? They kept a four-year freeze on retail rate revisions, even though input crude prices were skyrocketing since the West Asia conflict started two months ago. Worse, for the first time in over twenty years, they’ve started posting losses on jet fuel (ATF) last month. They only passed on a fraction of the needed price increase to try and match the cost.

Sharma was clear. There is no proposal to support the oil marketing companies for their losses.

The oil companies are booking losses or under-recoveries. The government used to cover those LPG shortfalls through budget subsidy support, but that’s not happening now.

Sharma pointed out there’s no increase in retail prices for petrol and diesel, nor for domestic LPG, even though supplies got messed up by the war. Only bulk diesel, industrial diesel, and commercial LPG—the stuff hotels and restaurants use—got increased.

She said that bulk diesel and commercial LPG only account for about ten percent of the total fuel. Every effort was made to protect consumers by not raising retail prices. Consumer interest was supposedly kept in mind during the decision-making.

Looking back at the last monthly rate revision on May 1st, the ATF price for international airlines was hiked by about five point three three percent, to USD 1,511.86 per kilolitre. This happened on top of prices for them more than doubled between April 1st and the date, hitting USD 1,435.31 per kilolitre.

Commercial LPG—the stuff for restaurants—jumped by nine hundred ninety-three rupees, hitting a record high of Rs 3,071.50 per 19-kg cylinder. The prices for the smaller 5-kg FTL or market-priced cylinders went from Rs 549 up to Rs 810.50 per bottle.

The 5-kg FTL cylinder now costs just a little less than the rate for the larger 14.2-kg cylinder used in homes. It’s a strange comparison, really.

And the ATF for domestic airlines? It’s still stuck at Rs 1,04,927.18 per kilolitre. That’s because the state-owned oil companies decided to absorb the rise in global fuel prices, trying to protect the airlines and the consumers.

Sharma concluded that the actions taken by the oil marketing companies were aimed at checking inflation.