Domestic petrol and diesel rates are directly benchmarked against international crude oil prices, and with oil prices soaring in the last two months, state-owned fuel retailers needed a price hike just to break even.
Now, with petrol and diesel prices increasing by Rs 10 per litre over 14 revisions since March 22, sources told CNBC-TV18 that "sustained fuel price hikes may not be needed if crude prices stabilise at current levels".
According to the sources cited by the channel, the current domestic retail fuel prices are benchmarked to international crude oil at $95 per barrel. With the last week's Brent crude oil prices at not more than $100 per barrel, the sources indicated that domestic fuel prices could again be put on a freeze for some time.
At the same time, they also stated that oil marketing companies (OMCs) may still recover about a month's worth of losses.
"Approximately one month more of losses may still be recoverable by OMCs," said the sources.
According to the report, OMCs made gains till January end and the gains balanced out in February. It is further said that though discussions have been held about a central excise duty relief, a decision has not been taken yet.
It is said that Rs 5 per litre excise cut on petrol and diesel will cost Rs 70,000 crore revenue loss at this stage for the government.
The last time when the central government cut excise duty of Rs 5 a litre on petrol and Rs 10 a litre on diesel and many states also reduced state tax, there had been a freeze on fuel prices from November 3, 2021, to March 22, despite the spike in international crude oil prices.
The domestic rates of petrol and diesel have remained steady for the sixth day in a row on April 12.
On a daily basis, OMCs adjust the price of petrol and diesel depending on the average price of benchmark fuel in the worldwide market over the previous 15 days and foreign exchange rates. Every day at 6 am, any changes in petrol and diesel prices take effect.
Here is how petrol and diesel prices are calculated in India. Also, know how much of it is tax.
Also Read: RBI Governor Shaktikanta Das forecasts crude oil price will be at $100 per barrel in FY23
On March 24, Moody's Investors Service estimated that India's fuel retailers IOCL, BPCL and HPCL have together lost around $2.25 billion or Rs 19,000 crore in revenue in the November 2021 to March 2022 period after they kept petrol and diesel prices unchanged despite a sharp rise in crude oil prices.
JP Morgan in its report said for OMCs to revert to normalised marketing margins, retail prices need to increase by Rs 9 a litre or 10 percent.