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• Oil marketing companies (OMCs) hiked the price of diesel by about Rs 25 per litre, making the fuel significantly more expensive for bulk consumers compared to retail consumers as oil refiners.
• The price of retail fuel at petrol pumps remains the same for the past 135 days, despite the volatility that crude oil is experiencing in price right now due to the Russian invasion of Ukraine.

 

Who are these bulk users?

• Bulk buyers are those entities that directly source oil tankers from OMCs due to their large requirements of fuel. Many of these entities either use diesel for powering generators for electricity or other industrial purposes.
• Bulk users include factories, airports, bus fleets, transport fleets, malls, etc.

 

How does this increase work?

• The bulk users directly source their fuel needs by calling for oil tankers. These sales are often governed by contracts. Now, the fuel price for bulk users has been hiked by Rs 25 per litre.
• As a result, these users can pass on the cost to their customers or try to absorb the new prices.

 

How are Fuel Prices Determined in India?

• Fuel rates are revised everyday at 06:00 AM in India, and this is called dynamic fuel price method.
• This makes sure that variations of global oil prices throughout the day are transmitted and reflected to fuel users and dealers.

 

India imports 80 percent of crude oil. We process this crude oil in our domestic refineries to generate petroleum products. A large share of our petrol comes via this process. In fact, we barely import any petrol or diesel. This crude oil goes through three stages of the transaction before it comes to your automobiles in the form of petrol and diesel.

 

Important terms related to Fuel Pricing

1. Oil Refineries: These refineries buy or extract crude like WTI (West Texas Intermediate) Crude, Brent Crude, OPEC Basket crude, etc. and convert these crudes into petrol, diesel, Aviation turbine fuel, Biofuels, etc.

Examples of such refineries are Reliance Industries, Nayara Energy, Bharat Petroleum, Indian Oil, Shell, ONGC, Saudi Aramco, etc.

2. OMC (Oil Marketing Companies): These are the companies who market the converted crudes (petrol, diesel, etc.) to dealers and ultimately to users.

Examples of such refineries are Indian Oil, Bharat Petroleum, Shell, Essar, etc.

3. Dealers: Dealers are the People who are engaged into business of buying fuels from OMCs and distributing them to users. They are distributors of fuel.

Example: Arvind Patel and Pravin Patel are distributors of cars of Maruti Suzuki Co., they are called dealers of the company and runs the business known as ‘Patel Motors’.

4. Users: We are the users of fuel for our vehicles, also the airplane transport companies who buys the aviation turbine fuels from OMCs directly to keep their planes flying through the skies.

 

How can Government controls Prices of Fuels?

• Central government’s tool to control prices of fuel is Excise Duty.
• State government’s tool to control prices of fuel is VAT.

 

Who is the official regulator of Fuel prices in India?

• Apart from taxes, Central government regulates the prices of fuels through base prices and cap prices at which dealers and OMCs deal with each other, decided by PPAC (Petroleum Planning and Analysis Cell) under Ministry of Petroleum and Natural Gas.
• Apart from this there are many licenses, regulations, laws applicable to refineries, OMCs, dealers, etc. and after passing through all this processes we get our tank filled with the fuel.

 

How Retail Price Of Petrol & Diesel Calculated?

• Fuel rates are decided by oil marketing companies. Since they aren't government regulated anymore, it's the responsibility of the oil companies to adjust prices according to global rates.
• However, the state and central governments takes taxes on the retail price of petrol and diesel.

 

Fuel prices in India are one of the highest taxed in the world. The amount we pay for 1 Liter fuel consists of average 70% taxes.

 

Read:

https://www.iasgyan.in/daily-current-affairs/crude-oil-prices

https://www.iasgyan.in/daily-current-affairs/crude-oil-crisis

https://indianexpress.com/article/explained/explained-hike-bulk-diesel-7829380/