There is renewed pressure on the central government and public sector oil distribution companies to reduce petrol and diesel prices in the country. The last change in petrol and diesel prices was on March 15. It was reduced by two rupees per liter that day. With that, the price of petrol became Rs 107.56 and diesel Rs 96.43 (Thiruvananthapuram price). The demand for a reduction in fuel prices is rising after the WTI crude price, which was at the rate of 80-90 dollars per barrel during the last March-April period, fell to 65.75 dollars, the lowest level since December 2021.

What are the oil companies thinking?

After a gap of two years, the prices of petrol and diesel were reduced in March. The decision was made by the central government ahead of the Lok Sabha elections. Oil companies did not revise their prices for two years despite the fall in crude oil prices as a part of making up for the losses incurred in previous months.

Although the price was cut in March, the oil companies have not touched the price since six months. Estimates are that this is also a part of ensuring operational profitability. The three oil majors posted a combined profit of Rs 7,371 crore in the first quarter of the current year (2024-25), April-June. Indian Oil’s profit fell by 81 percent and HPCL’s by 94 percent. BPCL’s profit shortfall was 71 percent.

Therefore, there are assessments that oil companies are unlikely to reduce fuel prices based on the current low crude oil prices alone. The decision will be taken after observing the crude price trend for a few more weeks.

Record profits ahead?

Lower crude prices have benefited public sector oil supply companies Indian Oil, BPCL and HPCL. Import cost and production cost will be reduced and profitability will increase. Lower crude prices are expected to help oil companies achieve record profits this year. This also increases the pressure to reduce petrol and diesel prices. Apart from this, Indian companies currently buy most of their crude oil from Russia at a discount to the market price. Russia accounts for 42 percent of India’s total oil imports. This also helps the oil companies to reduce the cost of production.

Low demand in China and the US, the largest consumer countries, is currently driving the price decline. Meanwhile, OPEC Plus, the grouping of oil exporters led by Saudi Arabia and Russia, may also intervene urgently to prevent crude oil prices from plummeting.

This will reduce production. Saudi Arabia has decided to cut production by 22 lakh barrels per day this month. If the market situation is unfavorable, Saudi and others may go into cutting production more. This will prevent the price from falling.