Oil on 2-month high but fuel prices may not rise on poll freeze

NEW DELHI: Crude rose to its highest in two months on Wednesday as the global oil market shrugged off Omicron fears but fuel consumers in India may not have to worry about their fuel bills since the government is unlikely to let fuel retailers raise pump prices till the state elections get over.

Global benchmark

Brent

crude topped to $84 a barrel following

US Federal Reserve

chair

Jerome Powell

hinting at tightening of interest rates as America’s economic growth was on track and the world’s largest economy would weather the Omicron storm. Prices are also buoyed by a shortfall in OPEC+ promise to add 400,000 barrels into the market every month. The grouping has been struggling to meet the target due to production issues in a number of member countries. The recent developments in Kazakhstan, where protests against gas price increase nearly turned into a popular uprising, added to fears of a tighter market.

But going by past trends, it is safe to assume the Centre would not allow public sector fuel retailers – which dominate 90% of the market – to raise fuel prices till the last ballot is cast in UP, Punjab, Uttarakhand and Goa. Prices had also been frozen when these states went to the polls in 2017. This is done to avoid giving poll campaign ammunition to the opposition.

Before last year’s high-stake

West Bengal

assembly election too, fuel prices were not raised between March 17 and June 6 even though crude kept rising. Prices were also frozen before state polls in Karnataka in 2018 and in Gujarat a year before that.

Oil has been posting weekly gains in recent times but fuel prices in India have remained unchanged since November 4, when the government slashed excise duty by Rs 5 on petrol and Rs 10 on diesel with a view to addressing popular anger against record-high fuel prices ahead of assembly elections in the politically crucial UP and four other states.

The BJP-ruled states also saw a matching cut in

VAT

almost immediately, while the opposition ruled states followed suit soon. As a result of the reductions in taxes, petrol price, which had topped Rs 100 a litre for the first time ever in February last year, fell below the mark and diesel also retreated from its march towards century.

Technically, the fuel retailers are free to revise prices daily in tune with crude, benchmark prices of petrol and diesel as well as rupee-dollar exchange rate. But in practice, it is no secret that it is the government that dictates the quantum and timing of the increase. Since the state-run retailers control the market, private retailers have no option but to suffer some loss as they have to match the prices to compete.