Simply Put: Will petrol prices in India stabilise anytime soon?

There are two things for certain that Indians are talking about this week – petrol prices, and of course, the sweltering heat.

After 9 out of 10 days of fuel price hike, there are high chances that people might be talking about the price rise of fuel more than the scorching sun.

While social media is flooded with memes of consumers wrecked by the soaring fuel prices, one of the major challenges for the government is to justify the petrol price hike, which is a global phenomenon.

Crude oil prices internationally have been skyrocketing for several reasons that seem to be beyond the control of any country’s government.

Even the market can feel the impact of rising crude oil prices. The Stocktwits’ Stock Room Sunday episode discusses this in detail.

So, how are petrol prices determined exactly?

Until 2010, the prices of petrol were determined by the Indian government and were revised every fortnight.

After debating it for years, the government finally deregulated petrol and diesel prices, in 2010 and 2014, respectively. Since 2017, petrol and diesel prices have been revised on a daily basis by the public sector oil marketing companies – Indian Oil, Bharat Petroleum and Hindustan Petroleum.

They determine the prices based on international crude oil prices, foreign exchange rates, tax structure, freight and other cost elements.

India depends heavily on crude oil imports, with some estimates pegging the number at over 80% of the country’s total oil needs. The oil marketing companies use the Brent Crude as the benchmark to determine prices.

The international benchmark crude prices also depend on the whims and fancies of oil producing nations as to what they do to curb the price rise. Under pressure domestically, US President Joe Biden’s administration is now reportedly thinking about releasing its strategic reserves of 1 million barrels per day in a bid to control crude prices. More supply leads to lower prices.

India is one of the biggest importers of crude oil after the US and China. And of late, India has been importing crude from Russia, a country which is currently at war with Ukraine, and hit with sanctions from US and its allies.

According to a BBC report, India bought around 12 million barrels of crude per day from Russia in 2021. Russia, which has had to bear the brunt of international sanctions following its Ukraine invasion, has reportedly offered huge discounts to India for buying its crude oil. According to a BloombergQuint report, Russia has offered crude oil to India at a discount of $35 per barrel on pre-war prices.

This action has also invited a lot of flak on India’s stance in the ongoing Russia-Ukraine war, even though it imports only a miniscule amount of its total oil needs from Russia at the moment. In the upper house of the parliament, India’s minister for petroleum and natural gas clarified that oil imports from Russia in the financial year 2020-2021 was not even 0.2% of total import of 175.9 million tonnes.

It has not been an easy task for India to trade with Russia since the war broke out as Russian banks and transaction systems have also been subject to sanctions. The Indian government is even considering trading in local currency – Indian Rupee – till the time the sanctions on Russia have been lifted.

There is another nation apart from India that may take advantage of the cheap Russian crude. As analysts believe, China could tap the discounted Russian crude market and purchase more oil from Russia.

Being the third largest oil importing nation, a fall in global oil prices will surely benefit India.

And currently, there are two things Indians are eagerly waiting for – rains for respite from the rising temperatures and stability in petrol prices.

Here's a short video on how fuel prices are calculated in India.

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