After the freeze: will we soon get a petrol price cut?

livemint.com:

NEW DELHI : Domestic pump prices of petrol and diesel have remained unchanged since May 2022, the longest freeze in India. With the Centre netting buoyant tax revenue and global crude prices benign, can consumers hope for a cut in the run-up to the elections next year? Mint explains. They have oscillated wildly following multiple geopolitical crises.

The start of the Ukraine war in early 2022 saw prices shoot past $100 per barrel in the summer of 2023 but it stabilized below $90 per barrel after the initial shock. In the second quarter of 2023, prices softened to less than $80 per barrel but started inching upward again, after Organization of the Petroleum Exporting Countries and Russia announced supply cuts in June and August. The recent Israel-Palestine conflict led to fears of prices breaching the $100 per barrel mark but they have, instead, declined to hover around $80 per barrel over the last month.

Petrol and diesel prices were deregulated in India in 2010 and 2014 respectively and prices are supposed to be market-linked and revised on a daily basis. But in reality, that hasn’t happened. The government has hiked excise duties on both fuels over a dozen times between financial years 2015 and 2021, which meant consumers did not benefit from low oil prices between FY2018 and 2021.

But as crude prices surged after the covid epidemic, pump prices did not move up either and state-run oil marketing companies (OMCs) bore the brunt. The current freeze in prices reflects the continual adjustment in margins of OMCs. All else (like the value of rupee against the dollar) remaining constant, at current pump prices, OMCs break even when global crude oil prices are $85 per barrel.