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Why OMCs reluctant on rate cut?

Fuel prices could have reduced by `1 in line with drop in global mkt

Why OMCs reluctant on rate cut?

The reluctance of oil marketing companies (OMCs) to make a downward revision of fuel prices in line with softening of global oil and product prices over past fortnight has prevented consumers from getting at least one rupee per litre relief on prevailing retail prices on petrol and diesel.

In line with softening of global oil prices, OMCs have not revised petrol and diesel prices for the past 10 days since July 18. But with the way petroleum products and crude prices have moved over last fortnight, the OMCs could have effected price cuts on fuel prices.

In the block of the last 30 days, benchmark Brent crude has remained on an average over $74 a barrel in a fortnight while the average has fallen to about $72 a barrel in the immediately preceding fortnight. The price movement has been similar for Indian basket of crude that is benchmark used by Indian oil companies and global prices of products.

As per oil industry experts, every $1 change in crude normally affects retail price of petrol and diesel roughly by 45-50 paise a litre with no major change in rupee-dollar exchange rate. If this calculation is applied, retail price of petrol and diesel should have started falling from this week in India with OMCs requiring to bring down rates by over one rupee per litre in few days or at one go.

Under daily price revision, OMCs revise petrol and diesel prices every morning benchmarking retail fuel prices to a 15-day rolling average of global refined products' prices and dollar exchange rate.

"The previous fortnight provided opportunity to OMCs to cut retail fuel rates. However, they have chosen to wait and watch as crude is still swinging on daily basis rising and falling consistently. Things would get clearer when more crude starts entering the market from next month by OPEC countries. This could soften oil prices if there is no big pickup in demand and US inventory levels remains stable," said an oil sector expert not willing to be named.

There have been occasions in past one month, when OMCs could have provided relief to consumers by cutting fuel pump prices. But, this has never been applied so far and OMCs seem to be satisfied by keeping petrol, diesel prices unchanged.

Subhash Narayan
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