Global crude oil prices have crashed to a four-month low, now hovering around $70 per barrel, down from $120 per barrel during the US-Iran conflict, according to Business Today. The sharp decline is driven by the US-Iran ceasefire and reopening of the Strait of Hormuz. The drop has raised expectations of a reduction in petrol and diesel prices in India, but experts indicate a cut may not come soon.
India's Fuel Price Hike Context
Since May 15, petrol and diesel prices in India have risen by around Rs 7.5 per litre. Private retailer Nayara Energy has already cut rates, but state-run oil marketing companies (OMCs) such as Indian Oil Corporation, Hindustan Petroleum, and Bharat Petroleum have not yet reduced retail prices, the report said.
Why a Price Cut May Be Delayed — Expert Views
The government cut excise duties on petrol and diesel by Rs 10 per litre, resulting in a fortnightly revenue loss of around Rs 7,000 crore, according to the article. DK Srivastava, Chief Policy Advisor at EY India, stated: "These two actions may be taken close to each other. The government may restore excise duties on petrol and diesel ahead of price cut after making an assessment of its fiscal situation."
Sourav Mitra, Partner – Oil & Gas at Grant Thornton Bharat, noted historical precedent: when crude prices fall sharply, the government often increases excise duties to capture part of the benefit. "The same logic is likely to be applied in reverse: as crude prices decline, the Centre will first roll back the emergency excise concessions, either partially or fully, before considering any reduction in retail prices," he told TOI.
Ranen Banerjee, Partner and Leader, Economic Advisory at PwC India, pointed to other expenditures: "Given the requirement for the government to continue with the capex push and impending pay commission related pressures on the fiscal that are on the horizon, the government could continue with the higher prices."
OMC Losses and Profitability Timeline
Oil minister Hardeep Puri stated that state-run oil companies have incurred a cumulative loss of Rs 74,781 crore on the sale of petrol, diesel and subsidised LPG. Petrol and diesel have been sold below cost for over four months. Industry estimates suggest that at crude prices sustained around $75 per barrel, OMCs would begin to recover past losses over a 6-12-month horizon. "At that point, with government guidance, price reductions could become feasible without unduly damaging OMC finances," the article cited. However, any retail price cut decided before OMCs return to profitability would represent a further implicit subsidy.
| Metric | Value |
|---|---|
| Crude high during war | ~$120/barrel |
| Current crude price | ~$70/barrel |
| Excise duty cut | Rs 10/litre |
| Fortnightly revenue loss | ~Rs 7,000 crore |
| OMCs cumulative loss (Hardeep Puri) | Rs 74,781 crore |
Market Outlook
The article indicates that the government is likely to first restore excise duties before permitting any retail price reduction, given the fiscal pressures from capital expenditure commitments and pay commission demands. For commodity traders and analysts, the key factors to monitor are crude price stability around $70–$75 per barrel and any fiscal announcements from the Indian government regarding excise duties.
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