With crude over $44/b, patience running out for OMCs to hold fuel price hike

The news of a successful vaccine against coronavirus has brought fresh energy in the oil markets with global crude oil prices crossing $ 44 a barrel mark.

While an increase in crude prices has been welcomed across major global oil producers, at home oil marketing companies are looking at this firming up with concern. The concern now is that at this level of crude and higher product prices, it would be difficult to keep the retail price of petrol and diesel steady for any time longer.

The OMCs did not effect any revision in retail price of petrol and diesel across the country on Tuesday maintaining the trend set a couple of months back when last fuel price revision was done.

So, petrol price in the national capital continues to remain at Rs 81.06 per litre. In Mumbai, Chennai and Kolkata, the fuel was sold for Rs 87.74, Rs 84.14 and Rs 82.59 per litre, respectively.

Diesel prices in Delhi, Mumbai, Chennai and Kolkata were at Rs 70.46, Rs 76.86, Rs 75.95 and Rs 73.99, respectively.

With no revision on Tuesday, petrol prices have now remained at the same level for 56 days now while diesel prices have been at the same level for 46 days.

However, the sharp firming up of crude prices has changed the dynamics. The average price of crude for OMCs in October was around $40 a barrel just a tad lower than the previous month. Thus the companies did not revise auto fuel prices as the differential was very low. But the crude average in the first fortnight of November is close to $43 a barrel.

Every dollar increase in the price of crude results in the retail price of petrol and diesel to be increased by up to 40 paisa per litre. This would mean that the fuel prices should be up by at least Rs 1.20 per litre by now. However, oil companies have kept fuel prices static even when there was a need to revise it downwards last month. That saving would prevent OMCs from increasing petrol and diesel prices by a higher margin and changes could only be moderate.

The global oil price has started showing signs of firming up ever since news of a successful vaccine against coronavirus came last week. Benchmark crude Brent rose over $45 a barrel last week, settling a tad lower at $ 44 a barrel on Tuesday.

Though oil companies revise petrol and diesel prices based on global movement of product prices, crude has a bearing on overall price sensitivity of petroleum products across the chain.