PSU Oil Companies announced an Increase of Rs. 3.14 in Petrol Prices

The PSU oil marketing companies on 15 September 2011 announced an increase of Rs. 3.14 in petrol prices. The companies attributed the hike to the rising crude oil prices and a depreciating rupee that increased the cost of crude imports.

The petrol price in Delhi will be increased by Rs. 3.14 a litre to Rs.66.84. Petrol prices increased for the second time in the past four months. Petrol prices vary from city to city, depending on VAT and other levies. Petrol will now cost Rs. 71.28 a litre in Kolkata, Rs. 71.92 in Mumbai and Rs. 70.82 in Chennai. Mumbai, Kolkata and Chennai it has crossed the Rs 70 mark for the first time.

The factors resulting in revision of the petrol price are the increase in the international price (FOB) of petrol and the devaluation of the rupee. The FOB for petrol was $119.41 per barrel went up to $125.18 per barrel marking an increase of 4.8 per cent.

The current petrol price of Rs. 63.70 a litre corresponds to the crude oil price of $103 a barrel. The Indian crude oil basket however presently stands at $110-$111. This difference, coupled with the rupee declining to the two-year low of Rs. 48 against the dollar, necessitated an increase in the retail price.

In December 2010, the oil marketing companies hiked petrol prices by Rs. 2.94 a litre. On 15 January 2011, the government hiked the prices by Rs. 2.50. Then  again on 15 May the oil companies increased the price by Rs. 5. On 25 June 2011, the government hiked the diesel prices by Rs. 3 a litre, the domestic LPG by Rs. 50 a cylinder and kerosene by Rs. 2 a litre.

The PSU oil marketing companies also hiked the Aviation turbine fuel (ATF) prices by 2.5 per cent.
The oil companies argued that with every Re 1 increase in the dollar exchange rate their losses were raised by around Rs 9000 crore a year. The impact due to the exchange rate is 48 paise and due to increase in international prices is Rs 1.72 per litre. The balance impact of 53 paise is due to VAT. Diesel accounts for 4.67% of WPI and any increase in prices impacts inflation significantly.