Explainer | Why are petrol, diesel prices rising?

Petrol and diesel prices have been touching record highs in India as fuel retailers revised prices upwards. On February 6, petrol price was Rs 86.95 in New Delhi, Rs 93.49 in Mumbai, Rs 89.85 in Bengaluru and Rs 89.39 in Chennai.

Read: Petrol, diesel prices at fresh high; oil retailers say only tax cut by govt can help

State-owned fuel retailers said only the government can help in bringing these prices down as it has the taxation handle. But what are the main reasons for the fuel price rise?

Here are some of the factors that impact fuel prices the most:

Cost of Brent crude oil and improving demand

Since India imports 84 per cent of its domestic demands for crude oil. Therefore, Brent crude prices have a direct bearing on domestic fuel prices. Oil marketing companies revise fuel prices on the basis of international prices. But as India went into lockdown, India's OMCs stopped revising petrol and diesel prices for over 2 months.

As the world economies recuperate from the impact of the Covid-19 pandemic, Brent Crude prices have been soaring, and the demand outlook for petroleum products has also improved.

Also Read: Demand for fuel in Bengaluru stagnates as prices rise

Brent crude price had fallen from $66 per barrel at the beginning of 2019 to $19 in April due to travel curbs and lockdowns. It has now reached close to $50 per barrel.

"On a medium-term basis, we do not see oil prices rising substantially. They are likely to however in the range of $50-60 per barrel," Oil Minister Dharmendra Pradhan told Parliament, adding that oil suppliers cartel OPEC has said it is rebalancing supply-demand.

Government's taxes

Taxes make a major part of the fuel prices in India. Excise duty and VAT constitute almost 63 per cent of the price of petrol and 60 per cent for diesel.

Pradhan had told the Rajya Sabha in a written reply to a question that excise duty levied by the Central government makes up for Rs 32.98 per litre of the price of petrol in Delhi and sales tax or VAT of the state government constitutes Rs 19.55. For diesel, the central excise adds up to Rs 31.83 and VAT to Rs 10.99.

Also Read: Massive cut in petroleum subsidy to hit domestic LPG consumers

Retail petrol rates have risen by Rs 17.11 per litre since mid-March 2020 after the government raised taxes to mop up gains arising from fall in international oil prices. Diesel rates have gone up by Rs 14.54.

Rupee-dollar exchange rate

Exchange rates have a major impact on the amount of oil India can buy in the global market. Indian oil companies buy oil in dollars but their expenses are in rupees. Therefore, companies gain from a fall in oil prices in international markets only if the rupee is strong against the dollar.

(With inputs from agencies)