🛢️Petrol Price Could be 30% Lower!
Global crude oil prices are crashing. Yet, petrol and diesel prices at pumps remain the same. Why? ReadOn!
Fuel.
Fuel makes our life go around. Without electricity, petrol or diesel, modern day life feels unimaginable.
As per The Hindu, Indians spend 17% of their income on fuel. This is one of the highest in the world.
And crude oil is a major source to meet our energy needs.
Sadly, we don’t have a lot of our own exploitable reserves or oil wells that we can rely on. Mother Nature has given us a lot of resources in abundance, except oil. That’s why we have to import ~ 85% of our oil needs.
With this context - let me come to the point of today’s conversation. Why are we talking about fuel today? And isn’t it the oldest topic to discuss in economics, geo-politics and business?
Well - today, we as consumers are standing on thin ice.
It may amaze you to know that prices of petrol and diesel for final consumers in India have not gone down, even when there has been a 40-50% fall in global crude oil prices!
Why is it so? Why is the Indian consumer bearing the burden of costly petrol and diesel, when the diplomats of the World are applauding us for getting a discount on oil purchases from Russia?
Let’s see.
The problem seems to have started in May 2022.
Since May 2022, the price of transport fuel has not changed (other than adjustment in central taxes). New Delhi prices:
Petrol - Rs. 96.76/L
Diesel - Rs. 89.66/L
While consistency is great, it doesn’t feel so when you can get something for a lower price. From June 2022 to May 2023, this is how the price of crude oil has moved (per barrel).
From June 2022 to May 2023, $ price per barrel has gone down 35%. INR price per barrel has also gone down by 32%! (why lower? Because $ vs INR has gone up). Even then, the price of petrol has not gone down by a penny!
What’s happening? To understand what’s really happening, we will have to look at the breakdown of petrol / diesel price.
This is how the formula works:
Crude oil (raw material) + refining margin of refiners + marketing and distribution margin of distributors + Central Government Taxes + State Government Taxes = Final Price of Petrol/Diesel for end consumer
💡 Insights:
Central and State taxes have largely remained constant throughout the period June 2022 - May 2023
Crude oil prices have gone down over the same period by ~32%
Refiner and Marketing margins have gone up over this period
Basically, refiners and oil marketing companies are currently making supernormal profits, and the benefit of lower global crude oil price is being cashed in by these players.
Is it right? Is it wrong? Who knows.
The socialist mind feels the ultimate benefit should be passed to consumers as soon as possible, especially when we think of the average Indian consumer.
The capitalist mind, on the other hand, feels that all these refineries and oil marketing companies had taken a dent in their bottom line, which delayed their expansion and other capital outlay plans. These super-normal profits may be deployed towards better technology or market access to ensure that prices remain low in the long term.
Can’t really put this in a box.
What’s your opinion, though? Should some of the benefit of the fall in price of crude oil be passed on to the ultimate consumer, the common man?
Let us know. We love hearing back from you - via email, WhatsApp pings, or comments on LinkedIn :) Whatever you find convenient…
Until next time, ReadOn :)
By: Shantanu Jain
Shantanu is an avid reader who loves teaching and mentoring business students. Anyone looking to learn more about entrepreneurship, business, money, investments - feel free to reach out to him on LinkedIn. He is also our co-founder turned Chief Mentor :)
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Excellent piece. Good wishes for future prospects.
Welcome back ! Missed them as part of morning routine. Hope the team is now back with full energy. Thank you for bringing excellent topics in your newsletter each day. All the best for next editions. Looking forward to them