Sunday, 26 Oct, 2025
By: Anshul Vipat
The fall in global fuel prices creates further room for downward revision in the retail selling price of petrol and diesel. However, that is not the case
The Russia-Ukraine war which began in March had cascading impact on the world. The conflict resulted in disruption of supply chains sparking global commodity prices. This soared inflation rates across the world. Crude oil supply too wasn't spared. Russia, which is among the top crude producing countries in the world was sanctioned by the west fueling crude oil prices. India was hit hard by the conflict. The high prices fueled New Delhi's expenditure, which imports close to 80 percent of its domestic crude oil requirement. Petrol and diesel prices soared in the country to unimaginable levels.
Fortunately, things have cooled down since then. The supply chains are slowly restoring, and global inflation has gone down marginally. Crude oil prices too has fallen sustainably. The crude oil price had touched 130 dollars a barrel earlier this year. Prices in the week ended September 29, 2022 averaged $86.2 per barrel. As of 1 October 2022, it has gone below $85 per barrel.
According to the data collected by Petroleum Planning and Analysis Cell, India's imported crude oil was priced at $121.28 onwards the beginning of June as the supply constraint caused by the Russia-Ukraine conflict impacted prices. But prices have been declining continuously since then. On September 27, the crude basket slipped to $84.75, losing 30 per cent from the peak.
Crude mismatch
This fall creates further room for downward revision in the retail selling price of petrol and diesel. However, that is not the case. Despite the decline in crude prices, the base price has not been revised by the major oil manufacturing companies to reflect the fall.
As the above chart suggests, petrol prices in Delhi was Rs 96.72/liter when the crude prices averaged $116/bbl. When crude oil prices went down to $105/bbl, the retail selling price remained the same. Then, in September, when crude oil further fell below $95/bbl, the retail prices continued to remain higher than Rs 95.
Reasons for steady oil prices
One of the primary reasons behind steady petrol prices is to compensate heavy losses of public sector oil marketing companies. It’s important to note here that there were multiple price freezes in the past few months. Between November 2021 and March 2022, despite international crude prices skyrocketing, the retail prices remained unchanged owing to the Assembly Elections in five States. A similar freeze was enforced in the recent months to curtail inflation. Such repeated interventions resulted in heavy losses for oil companies.
Then, we have the skyrocketing subsidy bills. Post the pandemic, the government’s spending has increased tremendously. In 2020-21, food and fertlisers subsidy along gobbled up Rs 556,565 crore from the public exchequer, representing 16.1% of the Centre’s entire Budget. This year, the government has pegged total subsidies to be at Rs 4,33,108 crore. Although this was lower than 2020-21 spending, but it was still higher than the pre-pandemic era. Taxes on crude oil is one of the major sources of revenue for both state and center, and thus can compensate to the looming expenditure.
Impact on you
The Indian economy is impacted both directly and indirectly by rising oil prices. According to International Energy Agency, high crude oil prices will lead to an increase in the Wholesale Price Index (WPI) by nearly one percent. High oil prices directly leads to an increase in inflation forcing the RBI to pump up the interest rate. It will lead to lower spending, and hence the country's growth will come down.
