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Sunday, February 28, 2016

Why the 75% Drop in Global Oil Prices Isn’t Reaching You

Why the 75% Drop in Global Oil Prices Isn’t Reaching You

http://thewire.in/2016/02/06/why-the-75-drop-in-global-oil-prices-isnt-reaching-you-20964/

 

Record production in the United States (US), weakened demand from the Eurozone and emerging economies like China and Brazil, and Iran’s entry into the international market have effectively slashed the price of crude oil for India, from $106 per barrel in July 2014 to $26 in January 2016 — a 75% drop over 15 months.
So, why are you not seeing evidence of this price-cut at your local petrol and diesel station? The answer: As global crude prices reach a 11-year low, the Centre and state governments steadily increase excise duties and value-added tax, shoring up their revenues and keeping fuel prices high for retail consumers.
Although India imports more than 80% of its fuel requirement, which means declining global prices should, theoretically, have seen sharp declines in retail petrol and diesel prices, Indian consumers of petrol and diesel now pay about double the global rate.
Screen Shot 2016-02-06 at 10.07.23 am

Crude Oil Prices in $/barrel of Indian basket, Retail Petrol and Diesel prices in Rs/litre
The Indian basket refers to a proportional mix of “sour-grade” Dubai and Oman oil and “sweet-grade” Brent crude oil
Retail prices of petrol and diesel prices in three states — Assam, Uttar Pradesh and Gujarat — show a variation of less than 10% during the current financial year, 2015-16, according to an IndiaSpend analysis. For instance, the petrol price in UP rose Rs.2 per litre, when global oil price halved over the same period.
Screen Shot 2016-02-06 at 10.08.18 am
*Oil price for Indian Basket in $/bbl, Petrol price in Rs/litre
Screen Shot 2016-02-06 at 10.12.08 am
*Oil price for Indian Basket in $/bbl, Diesel price in Rs/litre
Indian prices stay high because oil marketing companies (OMCs), such as Indian Oil Corporation Ltd, Hindustan Petroleum Corporation Ltd and Reliance Industries Ltd., add their margins, the central government adds excise, state governments add their own (value-added) taxes, and the dealers (petrol pumps) get their commission. The total of these is the retail price of the fuel you pay.
Excise hiked five times in three months
Screen Shot 2016-02-06 at 10.13.39 am
The excise duty on petrol and diesel has been hiked five times over the last three months, increasing the excise duty on petrol by 34%. On diesel, excise duty has increased by 140%. The price at which OMCs sell petrol to dealers (petrol pumps) has been halved in two years. Over the same period, retail petrol prices have come down only by 15%. The value-added taxes imposed by states have more or less remained the same, but excise duties—both basic and additional—imposed by the Centre have doubled between 2014 and 2016.
Screen Shot 2016-02-06 at 10.14.38 am
*OMC = Oil marketing companies; Dec-2015 and Feb-2016 data used due to non-availability of January data
The addition of central taxes on diesel is higher than those on petrol. Central taxes per litre of diesel rose to four times its value in April 2014 — from Rs.4.52 per litre to Rs.17.33 per litre in February 2016.
Screen Shot 2016-02-06 at 10.15.59 am
*OMC = Oil marketing companies; Dec-2015 and Feb-2016 data used due to non-availability of January data
Retail consumers pay more tax on petrol and diesel than its actual price. Of the price you pay for a litre of petrol, 57% goes to the government as tax. Of the Rs.44 per litre of diesel, 55% is tax. If the excise duties on diesel had not been increased these two years, diesel would have cost Rs.32 per litre today. The direct effect of oil prices on cost of transportation of goods and thus consumer inflation has been demonstrated by research from Integrated Research and Action for Development (an autonomous research institute), as journalist and economist Swaminathan Anklesaria Aiyar wrote in this blog. Research on inflation in Turkey and Sri Lanka has underlined the effect of fuel prices on inflation. Lower fuel prices can keep inflation in check, according to this report in Business Standard.
Abhishek Waghmare is an analyst with IndiaSpenda data-driven, public-interest journalism non-profit.

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