Falling crude puts OMC pricing under scanner

Falling crude puts OMC pricing under scanner


Why in News?

Oil marketing companies are recovering the ₹1 per litre price cut of October 4 which they had made on the Centre’s instructions and absorbed into their financials.

Highlights:

  • In the Indian basket, there is always a lag that happens with crude price changes, since the procurement happens at a certain point of time, and the pump prices follow later.
  • With oil prices and global petrol prices falling, this would be a good time for OMCs to be incorporating that ₹1 somewhere, and still cut petrol prices by some amount.
  • Oil marketing companies (OMCs) deny that they are doing so, , analysts argue that the pricing mechanism is so opaque and complex that there would be no way to tell even if they were recovering it.
  • It would cut the excise duty on petrol and diesel by ₹1.5 per litre each, and that oil marketing companies would administer a further ₹1 per litre cut in the price.
  • Since October 1, the Indian basket of crude oil has seen prices fall almost 24% as of November 21, whereas the price of petrol has fallen only 8.8% during that period.
  • While this disparity in price levels can be explained to some point by the manner in which petrol prices are set in India.

Process of Petrol pricing

  • Petrol pricing is a complex process, difficult to be known to other than those directly involved.
  • The international products, whose basket we use for pricing petrol products, do not move immediately and in tandem with the crude oil prices.
  • There can be a lag. Arbitrages also change. The price stack up also includes in-land costs, over and above international products prices.
  • These various components in pricing add to the opacity behind how the final retail price is determined.
  • For example, if the global price is $65 per barrel, then there are transportation costs, cross-subsidy losses, handling losses, export parity price, dealercommission, and then taxes added to this.
Falling crude puts OMC pricing under scanner Falling crude puts OMC pricing under scanner Reviewed by The Hindu Current Affairs on November 23, 2018 Rating: 5

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