What’s fueling the petrol, diesel price rise?

Fuel prices track surge in global oil rates, up for a second straight day 

By Shreyansi Singh, with agency inputs

(Edits to add graphic, tweets)

Petrol and diesel rates in the national capital jumped 35 paise to its highest-ever level of Rs 106.54 a litre and Rs 112.44 per litre, according to a price notification of state-owned fuel retailers. 

In Mumbai the cost of a litre of petrol for ₹ 112.44, and diesel at ₹ 103.26 per litre, according to the oil refiner, making it the highest fuel rates among the metropolitan cities 

Variations in fuel prices across states can be attributed to value-added tax or VAT.  

Oil prices in the international market have been on a rise with the price of International benchmark Brent crude briefly spiking to a three-year high of $86 per barrel earlier today. This rally was driven by a rebound in demand and a global energy crunch. 

Crude Oil prices have recovered sharply from a pandemic-driven slump; Graphic credit: Shreyansi Singh

Prices were hiked by 35 paise per litre each on four straight days last week, followed by a two-day lull on October 18 and 19. Today is the second consecutive day of price hike.  
 
Petrol rates have already hit the Rs 100-a-litre mark or more in all major cities of the country, diesel has also touched that level in over a dozen states.  
As a net importer of oil, India’s petrol and diesel rates track international benchmark prices.  
 
Why are global oil prices up?  

The global economy is recovering from a pandemic-driven slump and oil prices are riding that wave because a better economy simply translates to more transportation of goods, raw materials.  

The Organization of the Petroleum Exporting Countries and allies led by Russia, or OPEC+ as the alliance is known, increased its targets for output by 400,000 barrels per day (bpd) in September.  

OPEC+ calls the shots when it comes to anything and everything that impacts oil prices and their targets are indicative of demand for oil globally. They raised their output targets by 400,000 barrels per day (bpd) in October and November.  

OPEC+ policy changes
OPEC+ raised their output target for October, November; Image credit: Reuters

Oil prices often track prices of other related fuels like natural gas and coal. Coal prices have been on a rise due to a shortage in the global coal market and more specifically in the Asian coal market.  

What do the charts say?

The current structure of Brent crude oil futures indicates a “scarcity premium” that has widened to the most since 2013 this week.

This underpins the tight market prompting the fuel’s rally againsgt the backdrop of a wider energy crunch driven by an economic recovery from the COVID-19 pandemic.

Is there relief in sight?

There have been speculations that the government will alter the taxes it levies on fuels like petrol and diesel that make up for most of the price in the current pricing structure.

This would put more pressure on companies that sell oil and reduce the brunt that consumers have to bear.

When can we expect a decline?

The government is widely speculated by multiple media organisations to drop the ‘diwali bomb’ of a petrol and diesel price cut around the festival of lights next month. There have been no official announcements but the speculation is due to the nature of increase of fuel prices in the last few weeks.

Meanwhile, twitter is abuzz with witty tweets and jokes on the price hike.