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Crude oil price had taken a flight from $23.36 in May 2003 to reach $78.22 on August 9, 2006. It went up by nearly 235 per cent in 39 months. Thereafter, it cooled down a bit to reach $56.02 on October 4 -- a 28 per cent fall from its high. Although people may not be interested in the crude oil price worldwide, the key question for them will be: will petrol price come down in India with a decrease in the global crude oil prices? Let's try to understand how prices of crude have behaved over time and how prices of petroleum products are computed in India. This will help us understand petrol price movement in India. What is Indian Crude Basket?
Thus, fluctuation of any crude price globally impacts Indian oil [Get Quote] price too. Weighted average price of both types of oil means the price of India's crude basket. We can understand this through a graph. The graph contains data of petrol, diesel price in India, price of Indian basket and international price of both types of crude oil.
Note: Petrol & Diesel price in Rs (Mumbai price). Crude price is in $ for Brent Dated Sweet Crude. Crude prices may differ for different market and place of trade on any particular date. Subsidy effect With the softening of global crude oil prices, India's oil companies have started earning a profit of Rs 2 to Rs 2.25 per litre. Their losses on sale of diesel have almost been wiped off. But they are still making a loss on sale of subsidized kerosene and LPG (liquid petroleum gas). Tax effect As known to all, a major portion of the petrol and diesel price goes to the government in the form excise, customer duty, sales tax, et cetera. The total tax on petrol is 115 per cent to 150 per cent of its basic cost in different cities of India. Looking at the above factors, it is clear that world crude price is not the only constituent in the Indian petrol price. There are several other factors too that affect it. Then there are other non-financial reasons too that impact petrol prices: like people's reaction, pressures faced by a coalition government, et cetera. In the end, these are a few questions that will keep cropping up:
However, this time the government has taken the right decision of waiting rather than increasing petrol price.
The author is a chartered accountant. More Guest Columns |
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