Oil Marketing Companies Have Room for More Fuel Price Hikes

If crude oil prices continue to rise further, the government may mull cuts in excise duties on petrol and diesel.

Crude prices are back near the $50 mark, and surely fuel prices are on the rise.

Oil Marketing Companies (OMCs) raised petrol and diesel prices by Rs 2.58/litre and Rs 2.26/litre, respectively, with effect from 1 June.

Despite the sharp hike, OMCs haven’t yet passed on the entire impact of the crude price rebound. Brent crude, which dictates Indian crude basket prices, is up by 32 percent, while petrol and diesel prices have only risen 15 percent and 6 percent, respectively, since the beginning of 2016.

If crude oil continues to rise further, government may mull cuts in excise duties on petrol and diesel to compensate OMCs for under-recoveries. Currently, petrol and diesel attract excise duties of Rs 9.48/litre and Rs 11.33/litre, respectively.

During September 2014 and January 2015, when brent prices fell by 50 percent, government raised excise duties on petrol and diesel by Rs 7.75/litre and Rs 6.50/litre, respectively, instead of cutting prices of petrol and diesel for retail consumers. However, cutting excise duties will lead to lower revenues for the government and hence, pressure on the fiscal deficit targets.

Flying Set to Get More Expensive

Separately, Aviation Turbine Fuel (ATF) prices have been raised by 9% to Rs 46,729/kilo litre. This is likely to increase costs of aviation companies such as Spice Jet, Jet Airways and Interglobe Aviation.

Indian ATF prices have broadly tracked movements in crude oil prices in 2016.

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