The price of Brent crude has increased by 45% to USD 118.5 per barrel, up from USD 81.6 barrel when Oil marketing companies last revised fuel prices.
After a lull of 137 days, petrol and diesel prices in the country saw a Rs 0.80 hike on Tuesday, followed by another 80 paise increase on Wednesday. This was the first increase in the petroleum product prices by the Oil Marketing Companies (OMCs) since November 2, 2021.
On November 4, the government announced an Rs 5 per litre cut in excise duty on petrol and an Rs 10 per litre cut in excise duty on diesel. This was followed by many states cutting taxes on fuel products. The step was taken to provide relief to customers and cushion them against the soaring international crude oil prices.
Since then, crude oil prices have shot up over 40%, mostly due to the ongoing Russia-Ukraine war, but oil marketing companies (OMCs) kept the retail prices unchanged. Crude oil prices went up by 25% since the last hike in November.
Last week, OMCs increased diesel prices for bulk users by Rs 25/litre, while the aviation fuel was already up 50% since January. Speculations rose in the past few weeks that OMCs would start increasing fuel prices after poll results on March 10 as global oil rates touched a high of USD 140 per barrel earlier this month.
Read | DNA Explainer: How reliant world is on Russian gas, what's the alternate option?
Current rates in different cities
Delhi - Petrol Rs 97.01 and Diesel Rs 88.27 per litre
Mumbai - Petrol Rs 111.67 and Diesel Rs 95.95 per litre
Chennai - Petrol Rs 102.91 and Diesel Rs 92.99 per litre
Kolkata - Petrol Rs 106.34 and Diesel Rs 91.42 per litre
Noida - Petrol Rs 96.46 and Diesel Rs 87.97 per litre
Lucknow - Petrol Rs 96.88 and Diesel Rs 88.41 per litre
Jaipur - Petrol Rs 108.74 and Diesel Rs 92.33 per litre
Read | Petrol crosses Rs 100/litre-mark again, HUGE price hike expected next week
Why OMCs hiked fuel prices after so long?
Followed by a sharp increase in the price of crude oil, the Indian Oil marketing companies hiked the prices of petrol and diesel for the first time in 137 days.
The price of Brent crude has increased by 45% to USD 118.5 per barrel, up from USD 81.6 barrel when Oil marketing companies last revised fuel prices.
India imports about 85% of its crude oil requirements. Fuel prices in India are revised daily at 6 am in line with a 15-day rolling average of benchmark prices.
Prices of petrol and diesel have remained constant after the Centre announced a Rs 5 per litre cut in excise duty on petrol and a Rs 10 per litre cut in excise duty.
There have been no changes in the petrol and diesel rates while state elections in Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur were been conducted.
Oil prices hike can add more to the already high inflation, thereby decreasing the consumption demand. Government realises that inflation can reduce the demand.
Read | The good and bad effects of Russia-Ukraine war on India regarding commodities
Russia-Ukraine war and global oil price
One of the biggest reasons for the steep rise in oil prices globally is due to the ongoing Russia-Ukraine war.
The price rise was triggered by the fears that oil and gas supplies from Russia could be disrupted due to the conflict.
There was also the fear that retaliatory western sanctions would be imposed on Russia on grounds of Ukraine invasion.
Russia makes up for a third of Europe's natural gas demand and about 10% of global oil production.
Another important factor is that about one-third of Russian gas supplies to Europe travels through pipelines crossing Ukraine.
Russia-Ukraine war impact on India's oil price
India is spared to some extent because Russian supplies of oil and gas account for a tiny percentage.
India imported 43,400 barrels per day of oil from Russia in 2021, which is about 1% of overall its imports.
Coal imports from Russia stood at 1.8 million tonnes in 2021, which made up for 1.3% of all coal imports.
India also buys 2.5 million tonnes of Liquefied natural gas (LNG) a year from Russian company Gazprom.
But domestic fuel prices are directly linked to international oil prices as India imports 85% of its oil needs.
Hence supplies seem to be of little worry for India, but it is the oil prices that are a cause of concern.
How are oil prices determined in India?
Oil prices are determined by state-owned OMCs like Bharat Petroleum, Indian Oil and Hindustan Petroleum.
There are four contributing factors which determine the price of petrol and diesel in the country.
India imports Brent crude oil from the Organisation of the Petroleum Exporting Countries (OPEC) countries.
The crude oil is processed by boiling and then distilling to separate various fuels and gases.
The base price for these fuels, like petrol and diesel are then decided by the Central government.
After the base price of these fuels are decided, the processing and freight charges are added to them
Commission for the dealer at the petrol pump, Centre's excise duty, and state government's VAT are added to it.
And then the final price in the respective states are determined. Fuel is more expensive in states with lower demand.
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