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Fuel price cut held hostage by volatile oil, rupee fall and inflation


NEW DELHI: A cut in domestic fuel prices has been held hostage to the volatility in the global oil market and the sharp fall in the rupee’s value against the Greenback due to interest rate hike by the US central bank.
Benchmark Brent crude dropped $3.74 a barrel to $86.72 on Friday as the rate hike made the dollar stronger, making it costly for traders to buy oil, amid mounting fear of demand contraction due to recession.
Even reports of China’s oil demand rebounding and supply concerns over the latest Russian move to up the ante against Ukraine failed to stop oil prices from sliding.
This is the second time that Brent, which makes up about a quarter of India’s oil imports, has dropped below $90 per barrel to hover at 7-month lows. It is a far cry from the stratospheric $139 a barrel, highest since 2008, reached soon after the Ukraine conflict began on February 24.
But pump prices are unlikely to be reduced anytime soon for two key reasons. State-run oil companies, which control roughly 90% of the fuel retail market, have accumulated losses because of not raising prices for months in tune with the surge in oil prices to avoid stoking an already high inflation. Two, the rupee’s weakening widens margins and slows down the pace of recovery.
IndianOil, Hindustan Petroleum and Bharat Petroleum together posted a loss of over Rs 18,000 crore in the first quarter because of holding petrol, diesel and cooking gas prices, which correspond to about $85 per barrel of oil. Brokerages said the losses rose to Rs 12-14 per litre of petrol and diesel.
The recent drop in oil prices have erased the losses on petrol but the companies are still losing some money on diesel. The drop in the rupee’s value against the dollar will further delay the margins from turning positive. Oil market volatility also remains a concern amid high inflation.

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