Will petrol and diesel prices rise again? Fuel hike may be just the first of several increases, say experts

The government on Friday increased petrol and diesel prices by Rs 3 per liter after state-run oil companies faced mounting losses due to a sharp rise in global crude oil prices triggered by the ongoing West Asian conflict. India has kept its petrol and diesel prices unchanged for four years since the start of the Russia-Ukraine conflict.

TOI notes that according to experts and economists, the recent rise in petrol and diesel prices may only mark the beginning of a gradual increase in fuel rates. If the Middle East crisis continues and global crude oil prices remain above $100 per barrel, fuel prices may continue to rise in the coming days.

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Radhika Rao, Executive Director and Senior Economist, DBS Bank, suggests that further increases are likely based on historical trends. “The increases in pump prices in 2022 have been surprising. This time, given the sharp rise in global crude oil prices and limited signs of an end to the conflict any time soon, we could see one or two more modest increases taking the cumulative increase to around 10%,” he tells TOI.

Will there be an increase in gasoline and diesel prices soon?

Bank of Baroda Chief Economist Madan Sabnavis also agrees that the current increase of Rs 3 per liter in petrol and diesel prices is just a beginning and is aimed at compensating for losses faced by oil marketing companies (OMCs). “This may not be the only increase and we can expect more in the coming days depending on evolving conditions. Small increases have a better impact on consumer confidence,” explains Sabnavis.

He further adds: “Also, OMCs can monitor global developments and price movements before moving on to subsequent increases, as these have an impact on inflation, which will also influence policy decisions.”
Experts say the continuation of price increases will largely depend on the duration of the US-Iran conflict, the status of the Strait of Hormuz and the general course of global crude oil prices. Ranen Banerjee, Partner and Leader, Economic Advisory Services, PwC India, sees the current increase as only a partial reflection of costs. “Future actions will depend on how long the conflict lasts and the trend of crude oil prices. If they remain at current levels, there may be more gradual increases,” he said.

L&T Group Chief Economist Sachchidanand Shukla also points out the pressure on the system. “If global crude and LPG prices remain high for long, the government will have to further increase petrol and diesel prices as well as provide some support to OMCs on LPG,” he tells TOI.

“The price hike of Rs 3 per liter is a surprising response to the West Asian crisis that has been going on for about 3 months. It will provide some relief to OMCs that are suffering a gross marketing margin loss of Rs 15-20 per liter on sale of petrol and diesel,” he adds.

According to the PTI report, the increase of Rs 3 per liter is only a tenth of the amount required to fully cover the losses faced by OMCs due to rising crude oil prices. The government has already tried to ease the burden by reducing excise taxes, but this was not enough to offset the impact of crude oil remaining above $100. The general outlook remains clear: If current conditions continue, further increases in gasoline and diesel prices may be imminent.

Gasoline, diesel prices today

After the price hike, a liter of gasoline is sold at 97.7 rupees in Delhi. The rates for Mumbai, Kolkata and Chennai are Rs 106.68, Rs 108.74 and Rs 103.67 respectively. Diesel price in Delhi is Rs 90.67, while in Mumbai, Kolkata and Chennai it is Rs 93.14, Rs 95.13 and Rs 95.25 respectively.

Rates vary between cities depending on state-level taxes (value added taxes). Since petrol and diesel are not covered by GST, tax rates are not the same across the country. The price hike comes 16 days after the end of assembly elections in Assam, Kerala, Tamil Nadu and West Bengal. Despite a sharp increase in international crude oil prices, fuel rates remained unchanged during the election period.