What is driving the reduction in fuel prices?

In the first reduction in rates in over a year, the petrol price on March 24 was cut by 18 paise per litre and diesel by 17 paise a litre

The rise of fuel prices in India is directly proportional to the rising economic tension among Indian middle-class families. Those who can afford a car will keenly monitor the meter as an attendant at the gas station fills the fuel tank, preparing to shell out a hefty amount.

However, they now they have a reason to breathe a sigh of relief, albeit short-lived it may be.

In the first reduction in rates this year, the price of petrol on March 24 was cut by 18 paise per litre and diesel by 17 paise a litre.

Fuel prices were cut on Thursday again with petrol being reduced by 21 paise per litre and diesel by 20 paise, according to a price notification of state-owned fuel retailers.

Fuel prices cut for second day in a row: Check rates

What is the reason for this cut?

The price reduction follows international oil prices tumbling to its lowest since early February as the second wave of Covid-19 infection hits hopes of a speedy recovery in consumption.

West Texas Intermediate for May delivery was down to $57.76 in New York on May 23, the lowest close since February 5 while Brent for the same month lost $3.83 to $60.79 a barrel, the lowest since February 8.

Global oil prices have been falling due to concerns over new pandemic curbs and slow vaccine rollouts in Europe as well as a stronger dollar. The dollar hit a new four-month high against the euro.

Scepticism on the AstraZeneca vaccine and a surging virus across countries also dampened demand outlook.

Also read: Banks provide $4 trillion to oil since climate deal: NGOs

Brent crude slid $1.10, or 1.7%, to $63.31 a barrel at 0923 GMT. US West Texas Intermediate (WTI) crude dropped by $1.27, or 2.1%, to $59.91 a barrel.

Fuel prices in India had gone up by a record Rs 21.58 per litre on petrol since the government raised excise duty in March last year. Diesel prices had increased by Rs 19.18 a litre.

Prices, which last month hit record highs including crossing Rs 100 mark in some places in Rajasthan, Maharasthra and Madhya Pradesh, had been on freeze since February-end when elections to five states including West Bengal, Assam, Tamil Nadu and Kerala were announced.

The freeze in price revisions likely wiped out the Rs 2.5-3 per litre margin that oil marketing companies made on the sale of petrol and diesel as prices reached $70 per barrel, however, most of these losses due to the price freeze may have been offset by the recent fall in crude prices which meant that profit marginsfor these companies could have returned to normal levels, experts told The Indian Express.

Read more: For the first time this year petrol price cut by 18 paise, diesel by 17 paise

Earlier, Union petroleum and natural gas and steel minister Dharmendra Pradhan had said that reduced fuel production and oil-rich nations seeking more profits were the primary reasons behind spiralling petrol and diesel prices in the country, according to a report by Economic Times.

He said, "There are two main reasons behind the fuel price rise. The international market has reduced fuel production and manufacturing countries are producing less fuel to gain more profit. This is making the consumer countries suffer."

Meanwhile, Finance Minister Nirmala Sitharaman has said that she would be "glad" to discuss the suggestion of bringing petrol and diesel under the ambit of the Goods and Services Tax at the next meeting of the GST Council.

Read: Ready to discuss bringing petrol, diesel under GST at next Council meet: FM Sitharaman

Petrol now costs Rs 90.78 per litre in Delhi and a litre of diesel comes for Rs 81.10.

Rates have been reduced across the country and vary from state to state depending on the local incidence of taxation (VAT).

State levies and central excise duty account for more than half of the retail selling prices of petrol and diesel.

For instance, taxes make up for 60 per cent of the present retail price of petrol of Rs 91.17 a litre in Delhi. Excise duty constitutes 36 per cent of the retail price.

Over 53 per cent of the retail selling price of Rs 81.47 a litre for diesel in Delhi is made up of taxes. As much as 39 per cent of the retail price comprises central excise.

(With agency inputs)