Daily News Analysis

Why are oil companies cutting petrol, diesel prices now  

25th March, 2021 Economy

Context:

  • Oil marketing companies cut petrol and diesel prices for the second consecutive day after a near six-month period, which saw petrol and diesel prices rising consistently and hitting record highs across the country.
  • OMCs cut the price of petrol by 21 paise to Rs 90.78 per litre and reduced the price of diesel by 20 paise to Rs 81.1 in the national capital as the price of Brent crude fell from a peak of $70 per barrel in early March to $63.5.

 

Why are OMCs cutting fuel prices now?

  • Oil marketing companies are cutting prices of petrol and diesel after holding them constant for a 24-day period which has witnessed significant volatility in the global prices of crude oil.
  • Sources noted that OMCs had halted price revisions despite rising crude prices as fuel prices had become an electoral issue in key upcoming state elections in West Bengal, Tamil Nadu, Kerala and Assam.
  • Experts noted that the freeze in price revisions likely wiped out the Rs 2.5-3 per litre margin that OMCs made on the sale of petrol and diesel as prices reached $70 per barrel but that OMCs would have recouped most of their losses in the recent fall in crude prices and that a cut in prices meant that their margins would have returned to normal levels.

 

Why are crude prices falling now?

  • Both increasing supply of crude oil and concerns about demand have caused the recent correction in crude oil prices which had risen consistently from about $40 per barrel at the end of October to $70 per barrel in early March.
  • Crude oil prices have fallen on fears of new Covid-19 restrictions in Europe and increasing crude oil output from the US.
  • Crude oil prices continued to rise between October and early March as the OPEC+ group of oil-producing nations decided to continue production cuts despite crude oil prices reaching near pre-covid levels and the US was hit by severe snowstorms in mid-February which led to a sharp fall in US crude oil production.
  • Experts have however noted that rising crude oil prices have accelerated the recovery of crude oil supplies from the US.
  • A move by India to cut oil imports from Saudi Arabia as a response to the country maintaining production cuts despite India calling for a withdrawal of production cuts may also boost crude oil production in the US which emerged as the second most important source of crude oil for India in February displacing Saudi Arabia.

 

https://indianexpress.com/article/explained/explained-why-are-oil-companies-cutting-petrol-diesel-prices-now-7244410/