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On Friday, the Center signaled a potential hike in fuel prices in the coming weeks. State-run oil marketing companies continue to face steep losses amid rising global crude oil prices.
Government officials informed that oil companies are currently losing nearly Rs. 30,000 crore every month by selling petrol, diesel, and domestic LPG below market prices. The losses have grown steadily over the past two months as crude oil prices climbed following tensions in West Asia.
According to officials, both the government and oil companies had borne the extra cost burden so far to prevent any rise in consumer prices. However, they acknowledged that the prevailing system could not be sustained for a prolonged period.
While crude oil prices for Indian refineries averaged around $69 per barrel in February, they climbed to $114.4 per barrel last month. In May, crude oil prices averaged above $105 per barrel.
Brent crude oil prices hovered near $100 per barrel on Friday, while the Indian crude oil basket price stood at $99.69 per barrel.
Since crude is bought in dollars, the weak rupee has further added to their import bill.
The Center had earlier reduced excise duty on petrol by Rs. 13 per liter and diesel by Rs. 10 per liter to soften the impact of global crude prices on consumers.
Officials said the tax cuts were costing the government nearly Rs. 14,000 crore every month. Despite the reductions, oil companies continue to report significant under-recoveries, especially on domestic LPG cylinders.
Sources said there is limited room for further tax relief if global oil prices remain elevated for several more months.
According to experts, sustained losses on the financial front will affect oil companies and adversely affect their investment in the energy sector. As per G Krishnakumar, who was the chairman of Bharat Petroleum, India will remain dependent on fossil fuels for many years, while oil companies will need to develop robust financial systems to finance future projects.
SK Surana, the former Chairman of HPCL, said the government should consider both the inflation level and the impact on consumers from fuel price increases before granting any approval for an increase. The retail inflation level is 3.4%, which means a surge in fuel price will put further pressure on the economy.
