How Petrol Prices Increase or Decrease?! | Thasneem Banu

How Petrol Price is calculated?

We have seen news channels and newspapers mentioning about Hike in Petrol Price and sometimes there is a plunge. But we were never taught about how petrol price is determined and why it is increasing or decreasing.

This blog got you covered by answering your unanswered and unasked questions.

Let’s start with knowing how petroleum is formed?

Petroleum, also called crude oil, is a naturally occurring liquid found beneath the earth’s surface that can be refined into fuel. A fossil fuel, petroleum is created by the decomposition of organic matter over time and used as fuel to power vehicles, heating units, and machines.

In India, the OMC (Oil marketing companies) determines the price of petrol namely,

1. Indian Oil Corporation Ltd

2. Bharat Petroleum Corporation Ltd

3. Hindustan Petroleum Corporation

which is overseen by PPAC (Petroleum Planning & Analysis Cell) under the Ministry of Petroleum & Natural Gas.

Factors determining the petrol cost!

Since India imports 84% of petroleum products, any change in the global crude oil prices significantly impacts the prices in the country.

1. Crude oil cost

· Crude oil is an international commodity & any change in its cost impacts the fuel price in India.

· The cost of crude oil is mainly increased due to demand & supply, international political relations, future supply & reserves.

2. Rise in Demand

· Increase in the no of people owning private vehicles led to increase in demand of the fuel.

· Oil refinery companies in India face problem to meet the rising demand of petrol as the cost of crude oil is rising, thus resulting in less supply of petrol.

3. Rupee & Dollar

Oil imported in India is traded in Dollars. When the dollar strengthens against the Indian rupee, the buying cost goes high thus impacting the cost of petrol.

4. Taxes

· Excise duty is charged by the Central Government which is same all across the nation.

· VAT on petrol varies from state to state which is why petrol price varies from state to state.

· Central & state taxes makes for about 60% of the petrol price.

How Petrol Price is computed?

Retail Price of Petrol = Price at which the petrol dealers/ distributors buy from OMCs+ Excise Duty+ Dealer’s Commission+ VAT

As we have studied in Indirect Tax subject that petrol is currently outside the ambit of GST but may be included, if recommended by the GST Council.

Let’s see why.

 

What if Petrol comes under the ambit of GST?

VAT & Excise duty will not be applicable. Instead, a 28% GST will be paid on the base price which is roughly Rs 11.50. With a dealer commission of Rs 3.84, the price of petrol will be Rs. 56.44.

If petrol comes under GST, States would not be ready for an annual revenue loss of Rs. 2 lakh crores (collectively by all states)

Indeed, an astonishing fact! Right?

 

Key points

· 1 barrel of crude oil = 159 litres

· Petrol price changes every day @ 6AM (Earlier petrol prices were regulated solely by the Government. It was revised once in 15 days)

· In 2010, the Government deregulated the price of petrol & price of Diesel From 2014, it has been revised on a daily basis)

· BRENT CRUDE PRICE is the international benchmark price used by OPEC.

· (OMC)Oil Marketing Companies refine crude oil into petrol & then sell it to dealers by adding their own profit margin.

 

References: · Photo Credit: www.infiniteseaofopportunities.com

· investopedia.com

· thequint.com

· timesofindia.com


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