Global benchmark Brent crude oil prices have remained broadly capped at around $ 80-82 per barrel, levels in November (through November 25).
On Friday, November 26, prices fell about $ 4 a barrel until the Asian time stamp. However, after the US market opened, with the Brent Futures selling off, prices fell further by around $ 6 to close at $ 72.91 a barrel at ICE London.
Sources said this appears to be a knee-jerk reaction out of fears that the new variant of COVID-19 discovered in southern Africa could dampen economic growth and trigger another collapse in demand.
State-owned fuel retailers Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) review gasoline and diesel prices daily.
But this revision is based on the average international reference rate for fuels for the previous fortnight. Thus, the Sunday price is determined by the average of the previous 15 days.
“We naturally expect retail prices at the pump to drop as well. But that’s not how retail prices move. Given that international oil prices were restrained for most of November, Friday’s drop when averaged with the previous fortnight did not translate into a significant change.
“It is only when the rate cut continues for a few more days that we will see a reduction in retail gasoline and diesel prices,” a source said.
The reason a 15-day moving average is used to set prices is to insulate domestic consumers from the extreme volatility of international prices. If daily rates are used to set prices, it would cause massive fluctuations in prices at the pump every day, he explained.
Recently, major oil consumers such as the United States, Japan and South Korea, as well as India, announced the release of crude from their strategic reserves as part of a joint effort to reduce oil prices. international crude oil prices. Even these announcements could not have an impact on international prices.
However, new concerns related to COVID-19 have now made it possible to achieve the desired goal.
A cartel of oil producers, OPEC + could still have its say, with the group meeting scheduled for December 1-2, potentially resulting in lower production targets for 2022.
Thus, international crude oil prices could recover again if OPEC + announces a slower-than-expected production rollout, sources said.
Retail prices for gasoline and diesel have remained unchanged since November 5, following the announcement of a drop in excise duties of Rs 5 per liter and Rs 10 per liter respectively. The lower prices following the revision of the VAT rate by 27 states / UTs brought additional relief to consumers.
This reduction in excise duties and the reduction in VAT have helped bring fuel prices down from record levels. Petrol in Delhi currently costs Rs 103.97 per liter and diesel is priced at Rs 86.67 per liter.
Daily revisions of retail gasoline and diesel prices are carried out by the petroleum marketing companies on the basis of the 15-day moving average prices in the international market.
As a result, the impact on international oil prices of the OPEC + announcement and developments on the new COVID variant will decide the near-term evolution of fuel prices in the country, sources added.