Petrol and diesel prices are likely to be hiked this week as oil companies prepare to pare losses accumulated from keeping rates steady for over four months in the run-up to assembly elections in five states, including UP, despite international oil prices jumping to a 13-year high of $140 per barrel.
West Texas Intermediate crude futures, the US oil benchmark, rose to $130.50 per barrel on Sunday evening, its highest since July 2008, before retreating. The international benchmark, Brent crude, hit a high of $139.13 at one point overnight, also its highest since July 2008.
To compound things, the Indian rupee tumbled to a record low of 76.9812 per dollar on Monday.
India relies on overseas purchases to meet about 85 per cent of its oil requirement, making it one of the most vulnerable in Asia to higher oil prices.
The twin blows of oil prices, already up more than 60 per cent this year, and a weakening rupee may hurt the nation's finances, upend a nascent economic recovery and fire up inflation.
Petrol and diesel prices need to be increased by Rs 15 a litre for fuel retailers to break even, industry sources said.
Since 2017, fuel prices are to be adjusted daily in line with the benchmark international rate in the preceding 15 days. But rates have been on the freeze since November 4, 2021.
The basket of crude oil that India buys rose above $111 per barrel on March 1, according to information from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry.
This compares to an average of $81.5 per barrel price of the Indian basket of crude oil at the time of freezing of petrol and diesel prices four months back.
"With the last phase of polling ending on Monday, it is now expected that the government will allow state-owned fuel retailers to return to daily price revision," an industry official said.
But oil companies are not expected to pass on the entire loss in one go and they will moderate it - raising rates by less than 50 paise a litre every day.
International oil prices have been on the boil ever since Russia put its forces on the Ukraine border last month. They spiked after it invaded the central Asian nation on fears that oil and gas supplies from energy giant Russia could be disrupted, either by the conflict in Ukraine or retaliatory western sanctions.
While western sanctions have so far kept energy trade out, a prospect for a full embargo of Russian oil and products is leading to the latest rally in international oil prices.
Russia makes up for a third of Europe's natural gas and about 10 per cent of global oil production. About a third of Russian gas supplies to Europe usually travel through pipelines crossing Ukraine.
But for India, Russian supplies account for a very small percentage. While India imported 43,400 barrels per day of oil from Russia in 2021 (about 1 per cent of its overall imports), coal imports from Russia at 1.8 million tonne in 2021 made up for 1.3 per cent of all coal imports. India also buys 2.5 million tonne of LNG a year from Gazprom of Russia.
While supplies at the moment seem to be of little worry for India, it is the prices that are a cause of concern.
Domestic fuel prices - which are directly linked to international oil prices as India imports 85 per cent of its oil needs - have not been revised for a record 123 days in a row.
Rates are supposed to be revised on a daily basis but state-owned fuel retailers IOC, BPCL and HPCL froze rates sooner did electioneering to elect a new government in Uttar Pradesh, Punjab and three other states.
Petrol costs Rs 95.41 a litre in Delhi and diesel is priced at Rs 86.67. This price is after accounting for the excise duty cut and a reduction in the VAT rate by the Delhi government.
Before these tax reductions, petrol price had touched an all-time high of Rs 110.04 a litre and diesel came for Rs 98.42. These rates corresponded to Brent soaring to a peak of $86.40 per barrel on October 26, 2021. Brent was $82.74 on November 5, 2021, before it started to fall and touched $68.87 a barrel in December.