It is expected that the Centre might slash petrol and diesel rates by Rs 3-5/litre around Diwali given key state elections from November-December 2023.
New Delhi: Even as the petrol and diesel prices have remained the same across major cities in the country on Friday, it is expected that the fuel prices will come down during Diwali festival. After the domestic liquified petroleum gas (LPG) prices were slashed earlier this month, the Centre may cut petrol and diesel rates by Rs 3-5/litre around Diwali given key state elections start from November-December 2023.
As per a domestic brokerage firm JM Financials, this cut in fuel prices should mostly happen via reduction in excise duty or value-added tax (VAT), given the oil marketing companies (OMCs) lose out on auto-fuel marketing business at the current high crude prices, Live Mint reported.
The development comes as Saudi Arabia and Russia have extended their voluntary oil output cuts to the end of the year which resulted in a sharp surge in international crude prices.
The Central government had last week slashed price of the domestic 14.2 kg LPG cylinder by Rs 200/LPG cylinder for all 330mn domestic LPG consumers starting from August 30. This has been done to provide relief to the common man from the recent surge in inflation.
‘’The burden of this LPG price cut will be borne by the government, however, this may increase OMCs’ working capital given the usual lag in government compensation,” JM Financials told Mint.
‘’Further, there is high expectation that government may also cut petrol/diesel price by INR 3-5/litre around Diwali given key state elections start from November-December 2023,” added the brokerage.
Moreover, the investors have also estimated that Saudi Arabia and Russia will further extend voluntary cuts into October, but the three-month extension was unexpected.
In the meantime, US West Texas Intermediate (WTI) futures gained $1.14, or 1.3 per cent, to settle at $86.69 a barrel on Tuesday, also a 10-month high. Later, Brent crude futures trades around 0.2 per cent lower to $90.41 a barrel, while US WTI futures is 0.2 per cent lower at $87.36 as uncertain outlook for demand from China overshadowed the tightening supply in markets.
However, the OMCs did not significantly increase the retail prices last year even after crude reached a peak of $140 per barrel in March 2022. For this reason, the oil refiners registered losses as petrol and diesel rates have been unchanged since April 2022.
The central government however can force OMCs to cut petrol and diesel prices as their balance sheets have largely got repaired due to stronger profits in the current fiscal.
It should be noted that India is the fourth-largest global energy consumer behind China, US, and the European Union. And India is also a net importer of crude oil and fulfills as much as 85 per cent of its energy needs through imports.