Rising Diesel Prices Set New Record

Diesel prices soared to a record on Friday while petrol prices rose to their highest in 19 months after state oil companies increased rates for the thirteenth time in as many days.

Diesel has climbed to Rs 77.06 a litre in Delhi and Rs 75.53 in Mumbai. Petrol prices have risen to Rs 78.37 a litre in Delhi and Rs 85.21 in Mumbai. On Friday, diesel and petrol prices rose by 63 paise and 56 paise a litre, respectively.

In the last thirteen days, oil companies have raised diesel prices by a cumulative Rs 7.67 a litre and petrol by Rs 7.11 a litre, an unprecedented increase in prices.

Companies are expected to follow the international market trends to determine domestic fuel prices, but they often diverge. After the international oil prices crashed in early March, local fuel prices barely changed for about two months except to adjust for tax increases by state governments. This helped oil companies temporarily build a fat marketing margin, which was slashed after the central government sharply raised taxes and got companies to absorb it.

Companies use rolling 15-day average international prices to determine daily domestic rates of petrol and diesel. In the last fifteen days, international prices of diesel have risen 7% and of petrol by 3.6%. Local rates of diesel and petrol have risen by 11% and 10%, respectively, in the same period. Sharp price increases would help companies build strong marketing margins.

The Centre raised taxes in March by Rs 3 per litre and again in May by Rs 10-Rs13 on petrol and diesel. On both occasions, companies adjusted these tax hikes against their then fat margins.