Oil firms put price hike on hold

New Delhi: With oil PSUs deciding not to hike petrol and diesel prices ahead of the Karnataka elections, IOC chairman Sanjiv Singh on Tuesday said the company has decided to “temporarily moderate” prices to avoid sharp spikes and panic among consumers.

State-run oil firms have since April 24 not changed petrol and diesel prices despite benchmark international product rates going up by nearly $3 per barrel.

Separately, oil minister Dharmendra Pradhan said the government has nothing to do with fuel pricing after it deregulated and gave PSUs freedom to fix retail rates.

Mr Singh indicated that retail prices will rise if the current trend in international oil prices continues. Karnataka goes to polls on May 12.

“We have decided to temporarily moderate retail prices by not passing on the required increase as we believe the current international oil product prices are not supported by fundamentals. So we have decided to wait for a while,” Mr Singh said.

The freeze follows the finance ministry’s refusal to slash excise duty to give relief to the common man after petrol hit a 55-month high of Rs 74.63 a litre and diesel touched a record high of Rs 65.93.

“We can pass on daily spikes based on the freedom we have to revise prices on a daily basis. But we believe the surge in international oil products market is not supported by fundamentals and passing them on to consumers will unnecessarily create panic,” Mr Singh said. “So we moderate to a certain extent so that peaks are avoided.”

Asked about all the three PSU oil firms fixing retail rates in tandem, he said it was possible that all of them thought that the spike in international oil prices is not supported by fundamentals and needs to be moderated.

Fuel prices have not changed since April 24.  This is despite the benchmark rate for petrol going up from $78.84 per barrel, which was used for raising the price to Rs 74.63 a litre on April 24, to $81.61 now, according to sources privy to fuel pricing methodology.

The benchmark international diesel rates during this period have climbed from $84.68 per barrel to $87.14. Also, the rupee has weakened to Rs 66.62 to a US dollar from Rs 65.41, making imports costlier.

Shubhada Rao, chief economist, Yes Bank, said hardening of international crude oil price is likely to manifest itself via higher pressure on India’s twin deficits along with inflation while also having a marginally negative spillover on overall growth momentum.