On Monday, the benchmark Brent, a close proxy of Indian basket of crude, fell a steep 31% to $31/barrel – since the January 6 peak it touched in 2020, the sweet light crude dropped 50% – but India’s oil refiner-cum-marketing companies have apparently passed on to the consumer only a fraction of the price fall for their key input. Diesel prices in Delhi for instance dropped from Rs 69.17/litre on January 11, when it was at the highest level in calender 2020, to Monday’s level of Rs 63.26/litre. That was just 9% fall. That crude imports have turned a bit costlier by a 4% depreciation of the rupee since January would not suffice to explain the gap between the rates of fall in crude price and the retail prices of diesel and petrol.
Of course, the retail prices of petroleum products are not linked directly to crude oil price but are determined on the basis of a formula of trade parity pricing (80% weight to landed cost of notional import of petroleum products and 20% to export price of petroleum products). Also, an official from an OMC has pointed out, there is usually a lag between the time the contract price for a certain quantity of crude is fixed and it is delivered at the refinery gate – this is even 40 days when crude is purchased from distant sources like the US or South America (India has diversified its sourcing of crude in recent years, cutting the relative share of the West Asian countries, the conventional sole sources).
