Petrol prices may be reduced by another Re 1 per litre

29 Nov 2011 Evaluate

Petrol prices are likely to be reduced by another up to Re 1 per litre this week, on the back of declining trend seen in the global prices. The Oil marketing companies (OMCs), which are free to decide petrol prices, had announced a cut of Rs 2.22 a litre earlier this month, the first reduction in retail prices in nearly three years and the first since prices were decontrolled in June 2010.

Nevertheless, the price of aviation turbine fuel (ATF) is expected to rise by around 3% from the existing Rs 62,310 per kilolitre in Delhi, putting further pressure on loss-making airlines. On diesel too, the losses of companies are expected to increase by another Rs 2 a litre from the current Rs 10.17 a litre. Internationally, both ATF and diesel are having a price trend different to petrol.

According to industry expert, the international petrol price trend for this fortnight can allow the OMCs to make a cut of up to Re 1 a litre, inclusive of taxes. This is despite a further weakening of the rupee against the dollar in the current fortnight. Compared to an average Rs 49.6 against the dollar in first fortnight of the month, the rupee has averaged Rs 51.6 this fortnight. However, the international price drop is steeper, making a price cut possible.

Normally the OMCs monitor petrol prices on a fortnightly basis. They work out the prices based on their trade parity (80 per cent import price weight and 20 per cent export price weight) for the previous fortnight. Ever since the decontrol, petrol prices have risen nearly 39% to Rs 66.42 a litre in Delhi. In the same period, diesel, which is still regulated, saw prices increase by 7.4% to Rs 40.9 a litre. The gap between petrol and diesel prices, which used to be 25.8% before the decontrol, has now extended to 66.42%.

The widening price gap between petrol and diesel has slowed the growth of petrol consumption, which has recently fallen behind that of diesel. Compared to double-digit growth in recent years, consumption of petrol has been growing at 4.8%, while that of diesel has been growing at 5.9%.

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