Fuel prices to likely drop in India as global oil prices fall
- Because international fuel rates have fallen sharply, expect petrol and diesel price cuts soon
- Brent crude fell 11.55% to $72.72 per barrel
- With more than 90% market share in India's retail fuel trade, the three state-run marketers have a virtual monopoly
State-run oil marketers are now under pressure to cut gasoline and diesel pump prices after international oil prices fell by more than $10 a barrel on Friday, the biggest drop since April 2020, mainly due to fears of a new coronavirus variant called Omicron, three people told Hindustan Times.
Because international fuel rates have fallen sharply, expect petrol and diesel price cuts soon, possibly in one or two days," said one of them, who is a government official. On the final trading day of the week, Brent crude fell 11.55% to $72.72 per barrel, while US crude West Texas Intermediate fell 13.1 percent to $68.15 per barrel.
According to the people, who asked to remain anonymous, international oil prices are expected to drop further due to demand concerns related to Omicron, which has been designated as a "variant of concern" by the World Health Organization and the European Centre for Disease Prevention and Control.
A coordinated release of additional oil from strategic reserves of major consumers such as the United States, China, India, Japan, and South Korea, in addition to Omnicron, has influenced fuel market sentiment, according to the first person. “OMCs (oil marketing companies) are watching the situation, and they may pass on the benefit to the consumer if prices are sustained at this level,” he said.
The companies are wary because the Friday drop was "like a knee-jerk reaction" to fears that the new COVID-19 variant would "dampen economic growth and trigger another demand slump," according to a second source, a state-run fuel retailer executive.
He, on the other hand, downplayed the impact of countries releasing oil from strategic reserves to boost supply. “These announcements could not impact international prices much. However, renewed Covid-19 concerns have now brought about the desired objective,” he said.
For the first time, major oil consumers – the United States, China, India, Japan, and South Korea – responded to the cartel's supply squeeze by announcing a coordinated release of additional oil from their respective reserves to bring down soaring oil prices. On November 23, India joined a consumer group fighting the cartel, the Organisation of Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, for artificially controlling output.
Indian fuel retailers are concerned that the cartel, which meets on December 2, will cut supplies to stem price declines. “Thus, international crude oil prices may recover again if OPEC+ announces slower than expected production rollout coming up,” the second person said.
Although oil marketers claim to change fuel rates everyday to reflect international market dynamics, they have not done so in the last 24 days. Since November 4, when the central excise duty was slashed, the price of petrol in Delhi has remained stable at 103.97 per litre and the price of diesel has remained stable at 86.67 per litre.
With more than 90% market share in India's retail fuel trade, the three state-run marketers have a virtual monopoly. Emailed inquiries to the petroleum ministry and the three state-run oil companies – Indian Oil Corporation, Bharat Petroleum Corporation Ltd, and Hindustan Petroleum Corporation Ltd – went unanswered.
“Price reduction may not be as sharp as the decline in rates of Brent and WTI because only about 30% of crude OMCs purchase from the spot market, balance 70% is based on long-term contracts,” the first person said.
Long-term crude oil contracts are affected by fluctuations in international benchmarks such as Brent, as term contracts are also connected to benchmark rates, according to a third source.
India is the world's third-largest importer of crude oil, importing about 80 % of the total crude it processes. In the COVID-free year of 2019-20, the country imported 227 million tonnes of crude oil worth $101.4 billion.
“Although there were some gains last Friday (November 19) also, when average price of Indian basket fell below ₹6,000 per barrel, but OMCs wanted to wait as international oil market was volatile and a minor rate cut followed by immediate price hike was not desirable,” said the person mentioned in the third instance.