As UP poll looms, freeze on price hike begins to pinch oil companies


NEW DELHI: State-run fuel retailers have started losing money as they have held back upward revision in pump prices on verbal ‘nudge’ from the oil ministry, which appears to be avoiding opposition a political stick in the run up to the crucial UP assembly election.
Sources said the retailers have started losing about 24 paise on each liter of petrol and 65 paise on diesel as they did not raise prices since July 17 following “suggestions” to wait and watch the oil market volatility.
But whenever crude prices dropped during this period, the retailers promptly passed on the benefit. Between August 18 and September 5, they reduced petrol price by a total of 65 paise a liter in four installations and diesel price by Rs 1.05 in seven installations.
Technically, fuel retailers are free to set prices. But in practice, the ministry, as the owner, is known to offer verbal cues on pricing to state-run companies, who dominate nearly 90% of the country’s fuel retail market.
The retailers expect the under-recoveries to widen if pump prices are frozen or moderated in the run-up to the UP polls, as the uptick in crude prices shows no sign of ebbing anytime soon. A 20-day pause in price revisions in March before the high-stake election in Bengal and four other states had pushed up under-recoveries to Rs 4 on a liter of petrol and Rs 2 on diesel.
Crude has been shooting up since August 20 as concerns over demand in the Asia-Pacific eased and the trend remained positive in the US and Europe. Benchmark Brent shot up to $75 per barrel on Tuesday.
During the last two weeks alone, oil prices have increased by about $3 a barrel. That should have pushed up pump prices by more than Rs 2 a litre, going by the ballpark of each dollar increase in crude price buoying retail rates of petrol and diesel by 70 paise a litre.
Even now, the high Central excise and VAT are amping up the impact of rise in crude prices. No wonder petrol still costs above Rs 100 per liter in the country and diesel more than Rs 85.
Both the International Energy Agency and OPEC see global demand to outpace supply during the year, which will keep oil prices firm in the near- to mid-term. The oil market is also getting support from several OPEC members struggling to raise production as per plan, while demand rises.

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