As Covid-19 spreads across world, oil prices slump to 17-year low
International oil slumped to a 17-year low as coronavirus lockdowns hit major economies, causing demand to contract. In India, petrol and diesel prices have been frozen since March 16, despite the average crude oil import cost dropping by over a fifth. Another excise duty increase is likely soon as the government seeks to reinforce its war chest against Covid-19.
The benchmark Brent crude price on Monday dropped by as much as 6.62% to $23.28 per barrel. The price of West Texas Intermediate (WTI), another benchmark in oil pricing fell below 5% to around $20 a barrel.
Besides reduced demand because of the coronavirus pandemic, an oil price war between Saudi Arabia and Russia has contributed to the plunge in the price of crude. For the government, it means a windfall gain, boosted by one hike in excise duty earlier this month, to be followed by one more that’s in the works.
Government officials and company executives said prices of auto fuels in India had been frozen since March 16 to allow petroleum refiners to make up for inventory losses. And the government is considering increasing excise duty on petrol and diesel again to raise additional revenue to fund the battle against Covid-19.
The government raised excise duty on the two fuels by Rs 3 a litre on March 14. A Re 1 per litre increase in excise duty on petrol and diesel would mean an additional Rs 14,500 crore in annual revenue to the government.
According to the latest official data, which comes with a lag, India’s average crude oil purchase price (Indian basket) fell sharply to Rs 1,805.22 per barrel on Friday compared to Rs 2,272.08 per barrel on March 16, when oil refiners had last cut prices of petrol and diesel by 16 paise per litre and 15 paise per litre, respectively.
In Delhi, petrol is currently selling at Rs 69.59 per litre and diesel at Rs 62.29 per litre.
“Excise duty increase on petrol and diesel is imminent and a final view on its quantum will be taken by the finance ministry,” a government official said, requesting anonymity. Hindustan Times on March 21 wrote about the likelihood of another excise duty increase.
The official said the proposed excise duty hike will not only provide much-needed funds to meet the immediate requirements arising out of the Covid-19 pandemic but also serve as a cushion against any price surge in the volatile international oil market in the future.
The government often reduces excise duty on petrol and diesel to protect domestic consumers from any spike in international oil prices. Currently, the central levies on petrol add up to Rs 22.98 per litre and on diesel to Rs 18.83 per litre.
The finance ministry, the petroleum ministry and state-run oil marketing companies – Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) -- did not respond to queries rated to fuel price revision and tax matters.
A recent research report by State Bank of India (SBI) said the government is expected to limit the fall in retail prices and increase excise duty on auto fuels again.
“We thus strongly recommend that the increased excise revenue from oil should not be used for bridging the fiscal gap and pleasing the markets; rather sound economics demands it must be used as a fiscal package for income support to the people working in the unorganized sector who are already facing the brunt of loss of jobs,” the report said.