India is losing the advantage of substantially low international oil prices as its cost of crude imports in rupee terms has surged 69% in just two months, forcing state-run companies to raise the cooking gas price for the first time since February by Rs 11.50 a cylinder.
State-run Indian Oil Corporation (IOC), the country’s largest fuel retailer, issued a notification at midnight on Sunday raising the price of liquefied petroleum gas (LPG) used as cooking fuel from June 1.
“For the month of June 2020, there has been an increase in international prices of LPG. Due to increase in the prices in international market, the RSP [retail selling price] of LPG in Delhi market will be increased by Rs 11.50 per cylinder,” it said.
A 14.2-kg cooking gas cylinder in Delhi is now priced at Rs 593. Prices of the fuel in other cities vary, depending on local levies, according to the company’s website.
IOC said the retail price of cooking gas in Delhi had been slashed by Rs 162.5 a cylinder last month to Rs 581.50 because of a steep decline in global oil prices.
India’s average crude oil import price (Indian basket) surged about 69% to Rs 2,516.77 a barrel in just two months, up from Rs 1,491.57 a barrel on April 1, according to the Petroleum Planning and Analysis Cell (PPAC), the oil ministry’s official data-keeper.
Benchmark Brent crude, which plunged from more than $51.9 a barrel on March 2 to below $20 a barrel by April 21 due to slack demand and oversupply, is now hovering around $38 a barrel, amid hope of a prolonged supply cut by the producers’ cartel and demand revival due to lifting of the Covid-19 lockdown in many countries, including India.
There are indications international oil prices may move further north as the Organization of the Petroleum Exporting Countries (OPEC) and its allies, particularly Russia (together OPEC+), are expected to meet on June 4 to discuss extending production cuts beyond this month.
In a historic decision on April 12, OPEC+ decided to cut its overall crude oil production by 9.7 million barrels per day (bpd), or a 10th of global output, from May 1 for an initial period of two months ending on June 30. The producers’ cartel decided to shun the price war among them and agreed on a synchronised supply cut to stabilise crude prices after they plunged.
“Although rising prices of oil in the international market is always a matter of concern for an importer like India, current prices are well within our comfort levels. It is likely that prices will remain in the range of $40 to $45 a barrel for quite some time due to subdued demand, overflowing global oil storage facilities and tension between the US and China,” a government official said, requesting anonymity.
Experts, however, said rising global oil prices are a matter of concern for import-dependent India, especially at a time when demand is expected to surge as the country opens its economy from June, after a prolonged lockdown since March 25 to check the spread of Covid-19.
SC Sharma, former officer on special duty at the erstwhile Planning Commission, said two signs of international oil prices firming up are that global demand is picking up fast, and OPEC+ could further extend production cuts.
“That may lead to oil prices going beyond $40 a barrel. In that situation, oil companies may have to hike petrol and diesel prices by Rs 5 and Rs 6.5 a litre [respectively] or the government may have to reduce additional excise. As the prices have not been revised by OMCs [oil marketing companies] for a month, any increase in import price beyond $30 a barrel may adversely impact OMCs,” he said.
The Union government could raise excise duties on petrol and diesel twice without affecting retail prices of the two fuels because of low prices of crude in the international market. On May 6, it raised the central excise duty on petrol and diesel by Rs 10 a litre and Rs 13 per litre, respectively. On March 14, it raised the levy on the two fuels by Rs 3 a litre each. An additional rupee that comes to the exchequer by way of excise duty on petrol and diesel means an additional Rs.14,500 crore in revenue.
Nilaya Varma, co-founder and CEO of consultancy firm Primus Partners, said, “International crude oil prices are still on the lower side, which is favourable for India. The country needs fund to revive economic activities that were disrupted due to the prolonged lockdown because of Covid-19. Low international oil prices will reduce the country’s import bill and help the exchequer to raise additional funds through increased excise duty.”
India is the third largest importer of energy after the US and China. It imports more than 80% of the crude it processes. It imported crude oil worth $ 101.4 billion in 2019-20.