Why fuel rates remain idle despite soaring oil prices

It has been many moons — June 2017 to be precise — since petrol and diesel prices in India were deregulated. Simply put, the market decides on a daily basis if the price of per litre of fuel will go up or down.

However, a strange phenomenon has been taking place for the past 17 days. Crude oil has inched up by nearly $4 a barrel but prices in India have stubbornly remained stagnant.

Something doesn’t add up.  The government and oil marketing companies (OMCs) have long been harping that fuel prices are free from control and the global market decides the price.

To be fair, Indian crude oil prices take a lot of calculations in consideration and work with a ‘lag’ as there is a gap from purchase to refining and selling. And OMCs have been talking about watching crude oil prices and holding prices in order to shield the pain of high and volatile prices to consumers.

Even with this explanation, however, given the way crude oil prices have been soaring, sooner or later prices will have to be passed on to the consumers. Therefore, the best strategy would have been to keep hiking prices instead of a total freeze for over a fortnight.

The timing of this freeze is interesting. The Karnataka elections are due later this week.

But if petrol and diesel prices start rising after the Karnataka elections, the OMCs and the government will find themselves in a bigger pickle.

Crude oil has risen by more than 10% in the past month to the highest in 42 months, as the US withdrew from the Iran Nuclear Accord and threatened new sanctions.

India purchases part of its crude oil requirements from Iran.

Nonetheless, what will happen to crude prices in India remains to be seen. After all, as they say, oil is 90% politics.