Will you soon pay Rs 100 for petrol in Mumbai? Soaring crude oil prices make a case for it
OMCs like HPCL, IOCL and BPCL derive final retail price of petrol by undertaking an exercise involving international crude oil prices, state’s VAT and government’s excise duty.
OMCs have hiked petrol prices in various metro cities on the back of rising crude oil and weak depreciation. A litre of petrol today was priced at Rs 82.86 in New Delhi, at Rs 84.68 in Kolkata and at Rs 86.13 in Chennai.
Interestingly, it was Mumbai which has now become the most expensive city in terms of petrol price. The financial hub of India was selling petrol at Rs 90.22 per litre. Each coming day there is consistent rise in petrol prices in Mumbai, and if the trend continues, then it would be only a matter of time when you may end up paying Rs 100 for purchasing petrol. As such, Mumbai may well be the first to sell normal petrol at Rs 100 or above!
It needs to be noted that, Mumbai charges the highest Value Added Tax (VAT) at 39.12% on petrol.
OMCs like HPCL, IOCL and BPCL derive final retail price of petrol by undertaking an exercise involving international crude oil prices, state’s VAT and government’s excise duty. Both states and central government have been reluctant to provide relief on the quantum of taxes levied on petrol, taking it to all-time high.
What makes a case for Rs 100 per litre petrol in Mumbai?
Care Rating believes, given the current oil market scenario, prices of crude oil are set to rise around USD 78/bbl -USD 80/bbl unless the number of rigs deployed by the by the United States are increased.
The agency explained, going forward, if the current market conditions continue, once the sanctions on Iran are implemented, post November 4th, 2018 prices of oil are likely to go even higher given an expected drop in supply from major producers Iran and Venezuela and political and price escalation prevailing in the markets.
It is no mystery that India is highly vulnerable against international crude oil, after all its the third largest oil importer in the world. The country’s dependency on oil imports is about 80% of its total consumption.
Phillip Capital is expecting international and domestic oil prices to trend higher as the implementation of US’ sanctions on Iran get near. Higher oil prices, resultant additional INR weakness, along with state elections in November‐December would continue to weigh on the Indian economy and financial markets. This could dent the likely positives of festive demand.
Further, Ashray Ohri, analysts at ICICI Bank said, “Although the government has used this large windfall gain to correct its macro-economic imbalances, which was seen in the fiscal deficit falling from 5.2% of its GDP in FY 2013 to 3.5% in FY 2018, the re-surging international crude prices revives the earlier periods of fiscal dismay.”
In Ohri’s opinion, a relief extended to the consumers cannot be met without re-straining the fiscal balances of the country. Moreover, the Indian quandary is more pronounced this time with the incumbent government looking to cement its majority for a second term in the general elections next year.
Although, the Indian crude basket is estimated to price far below the average peak of $111.9/barrel seen in FY 2022, Ohri says, “the largely inelastic and record high oil demand from India is expected to increase further."