Diesel may get Cheaper as Crude Oil Price Tumbles

There may be some good news for an economy burdened with inflation as the government mulls over slashing diesel prices for the first time in seven years. On Monday, crude oil prices touched $99.36 (Rs.5,995) per barrel, its lowest in 14 months. Following the decline in the crude oil prices and strengthening of Indian rupee, Indian government now looks positive about de-regulation of diesel prices.

"If this downward trend in international oil prices continues and the rupee appreciates even marginally, there will be over-recovery from this month," a senior executive at an oil PSU told Economic Times.

""We intend to pass this on to the customers. Price review is expected on 15 September," he added.

The official said that the government has been evaluating the political situation in poll-bound states before deregulating fuel prices. The oil ministry is keeping a close watch on fuel price movements for now.

The government seems hesitant to cut diesel prices before assembly elections in Jammu & Kashmir, Maharashtra, Bihar and Jharkhand as political prospects of BJP could be harmed if fuel rates go higher during assembly elections, an official said.

However, a final decision on de-regulation would be taken only after consulting the finance ministry.

While petrol prices change on the 15^th and 30^th of every month, the government has been raising diesel prices by 50 paise every month since January last year.

The government's oil import bill slips by Rs.40,000 crore with every dollar decrease in oil prices. A $2-4 per barrel reduction in crude oil prices would lower India's oil import bill by Rs.8, 000 to Rs.16, 000 crore, reported Hindustan Times. On the flip side, each time that the rupee weakens against US dollar, Rs.8, 000 crore is added to fuel import bills.

India is world's fourth-largest oil consumer in the world and purchases around 190 million tonnes of crude oil for $145 billion every ever from global oil markets.

Impact of fuel price cut:

-Fall in global oil prices reduces domestic fuel prices.

-Allows the Reserve bank of India to ease up on interest rates for the next monetary policy announcement.

-Reduces fiscal deficit

-Brings down import costs

-Reduces inflation rate

-Boosts private investment in the fuel retail sector that was opened up in 2002.

Stocks:

At 12 pm on Tuesday, stock index of BSE Oil and Gas slipped 74.29 points or 0.64% at 11, 586.89 points. Except Cairn India and Petronet LNG, all shares were recorded slipping.