Indian consumers are bracing for a potential increase in petrol and diesel prices after the Diwali festival, as global crude oil benchmarks surge and import costs escalate. Energy expert Narendra Taneja indicated that domestic fuel price revisions are probable post-Diwali and before Christmas, suggesting that the government and oil marketing companies may find it increasingly difficult to absorb rising international expenses indefinitely.
Rising Crude Oil and Import Basket Prices
India's average crude oil import basket price climbed nearly 4% month-on-month, reaching $120.46 per barrel by October 26, marking its highest monthly average since March 2012. This surge from $116.77 per barrel in September is primarily attributed to escalating geopolitical tensions in West Asia, which have pushed up marine insurance premiums and freight rates.
While Brent crude has surpassed $110 per barrel, dated Brent has reportedly touched $140 per barrel. Taneja highlighted that the actual cost for Indian refiners is significantly higher than global headline prices, with additional expenses for freight, marine insurance, and tanker-manning adding an estimated $20-27 per barrel to the landed price, depending on the crude source and refiner.
The Burden on India's Economy
Currently, the Centre, state governments, public-sector oil companies, and the Reserve Bank of India are collectively absorbing the impact of expensive oil. An Axis Bank Research report estimated this support at 1.7% of GDP, assuming an average crude price of $100 per barrel. Every $10 increase in crude prices adds another 20 basis points of GDP to this burden if retail fuel prices remain unchanged.
India's crude oil import bill rose by 46.3% year-on-year to $90.6 billion during April-September. Taneja emphasized that this absorption is not financially sustainable in the long term without impacting the health of these entities. He also stressed the importance of diversifying crude supplies, investing in overseas oil and gas assets, and expanding crude and LPG storage capacity to enhance India's energy security amidst volatile global markets.
What This Means for Consumers
Should the increased costs be passed on, consumers will face higher petrol and diesel prices, directly impacting commuting and transportation expenses. Furthermore, rising freight costs could lead to an increase in the prices of essential goods, fueling broader inflationary pressures. The ultimate impact will depend on how long crude prices remain elevated and the extent to which the government and oil companies can continue to shield consumers from these global market dynamics.