It is no mystery that India is highly vulnerable against international crude oil, after all its the third largest oil importer in the world. The country’s dependency on oil imports is about 80% of its total consumption. Currently,  Brent crude has moved to near $80 per barrel, while US WTI futures are trending near 72-mark. Shockingly if you look at past behaviours of crude oil and its impact on domestic fuel prices, the relation is mostly asymmetric. What’s still not understandable is that, crude oil was once upon a time in 2014 near $100 per barrel and during that time fuel retail prices were way lower compared to current valuation. Even as consumers are busy fuming over the volatility of crude oil and talking up a storm over Indian fuel products', like petrol and diesel, skyrocketing prices prices, deeper indicators have emerged as an issue for them now.   

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Let’s have a closer look at crude oil performance and its impact on petrol and diesel prices. 

Firstly, let’s remember where are fuel prices now. Today, a litre of petrol was valued at Rs 82.22 in New Delhi, at Rs 84.07 in Kolkata, Rs 89.60 in Mumbai and Rs 85.48 in Chennai. In case of diesel, a litre of this fuel is priced at Rs 73.87 in New Delhi, at Rs 75.72 in Kolkata, at Rs 78.42 in Mumbai and Rs 78.10 in Chennai. These are the prices, when brent crude is near $80 per barrel. 

There was a time in 2014, where brent crude was near $100 per barrel. During those period, petrol price ranged from Rs 71 to Rs 80, while diesel price were trending between Rs 57 to Rs 66 in metro cities. 

After 2014, brent crude dropped hovered $40 - $55 per barrel from 2015 to 2017. From 2015 till June 16, 2017, petrol price stayed well between Rs 63 to Rs 77, whereas diesel hovered between Rs 51 to 61 in these metro cities. 

Interestingly, according to ICICI Bank research note, although international prices have fallen sharply by almost 40% in the last five years, retail prices of petrol have actually increased by 9% to an all time high, with retail prices of diesel increasing by 33% in the same period. 

The note explained that, government has absorbed the consumer surplus related to the falling crude prices by levying increased central and state taxes, which add 50% to the fuel cost borne by the final consumer now.

Following higher taxes, the government witnessed its excise revenue rising to more than double as it grew at a CAGR of 25% form FY 2013 to FY 2017, while the state revenue increased at a CAGR of close to 13% in the same period. 

Ashray Ohri, analysts at ICICI Bank said, “Although the government has used this large windfall gain to correct its macro-economic imbalances, which was seen in the fiscal deficit falling from 5.2% of its GDP in FY 2013 to 3.5% in FY 2018, the re-surging international crude prices revives the earlier periods of fiscal dismay.”

In Ohri’s opinion, a relief extended to the consumers cannot be met without re-straining the fiscal balances of the country.  Moreover, the Indian quandary is more pronounced this time with the incumbent government looking to cement its majority for a second term in the general elections next year. 

Although, the Indian crude basket is estimated to price far below the average peak of $111.9/barrel seen in FY 2022, but Ohri says, “the largely inelastic and record high oil demand from India is expected to increase further. 

As per IEA, India oil demand was 4.57 million bpd and is expected to cross 5 million bpd by 2019. This is seen to pinch the Indian import bill a lot more than before. With India having enjoyed the fruits of low crude prices for more than three years now, it is to be seen how India bears the crude storm this time.