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Petrol, diesel prices unlikely to flare up ahead of 2019 polls

New Delhi: Consumers may be spared big spike in auto fuel prices ahead of the 2019 general elections with state-owned oil marketing companies planning to absorb a portion of the anticipated hike while deciding on retail rates of petrol and diesel.

Sources said these companies built a buffer during the recent fall in global crude and product prices by effecting less than proportional decrease in retail prices of fuel. It means prices have not been lowered in real terms. The buffer could be put to use once prices begin to rise again when global markets starts to feel the impact of the latest Opec announced production cuts.

“The idea is to prevent fuel prices from touching record highs again. Crude prices, which have fallen about 25 per cent since mid-October, are likely to cross $70 a barrel soon. The buffer would be used to see that increase in retail fuel prices could be paused on few days while quantum of increase could be lowered on others,” said a government official privy to the development.

Retail price of petrol touched an all-time high of Rs 84 a litre and diesel Rs 75.45 a litre in Delhi (over Rs 91 a litre in Mumbai) on October 4 due to rise in global oil prices from around $50 a barrel in early part of the year to over $80 per barrel in September. The spike attracted wrath of public and severely dented the government’s image over its ability to contain price rise. The Indian basket of crude fell to a low average of $65.40 a barrel in November. But with Opec, including Russia, announcing to take 1.2 million barrels per day of production off the market for the first six months of 2019, crude is expected to start nearing $80 a barrel soon.

This could take petrol and diesel prices closer to October 4 levels, which the government wants to avoid especially ahead of general elections. If we look at the November data, petrol was being retailed at Rs 78 a litre and diesel Rs 72 a litre in the national capital even when crude price in the Indian basket was about $69 a barrel. At this level in April this year, petrol was being retailed at Rs 73-74 a litre and diesel Rs 65-66 a litre. And auto fuels’ price was high despite the government having reduced excise duty on them by Rs 1.50 a litre in October.

It would mean even if crude touches $80 a barrel, the retail price of fuel would be well below that the October highs.

Officials of OMCs disagree over higher cuts in retail price of fuel saying the current scenario should be viewed in the context of sharp fall in the rupee against the dollar making oil purchases expensive.

Oil prices have fallen over 25 per cent in last one and half months due to easing of supply pressures, particularly from Iran. The US waiver for oil imports from Iran to major oil importers has eased the situation. But analysts believe once Iran oil exports starts getting wiped out from next year, there could be supply issues and a resultant price rise. The Opec cuts only have added to price worries.