Crude prices have come crashing down – but what we have seen as benefits trickling in is a fraction of what the reduction inc most has been. How is this possible when petroleum prices are supposed deregularised and are supposed to follow market economics.
A Barrel of Crude consists approximately of 159 Litres. In a typical indian refinery the product pattern based on weight basis is about 4% LPG, 13% petrol (MS), 50% Diesel and remaining products such as Naphtha, kerosene, Fuel oil, pet coke, sulphur etc.
With the above typical configuration the production will be such as petrol approx 20-30 Lit per barrel of crude, Diesel 80-90 Lit and remaining will be the other products. That leaves a balance of 37% for all the other distillates.
Lets take a look at the Numbers
- 1 Barrel of Crude at Todays Market price = $ 57 (Brent Crude) = Rs 3534
- Cost of 1 Litre of Petrol in Bangalore = Rs 62.81 / Litre
- Cost of 25 Litres of petrol generated / Barrel = Rs 1570.26
- Cost of 1 Litre of Diesel in Bangalore = Rs 50.72/ Litre
- Cost of 85 Litres of Diesel generated / Barrel = Rs 43112.20
- Total Cost of Petrol + Diesel generated / Barrel at current Market price = Rs 5881.46
- We are already at a price that is higher than the cost of 1 Barrel of Crude by Rs 2347 ( 66%)
I am yet to calculate the sales proceeds from Kerosene / Naptha / LPG / Sulphur / Jet Fuel etc – all of which contribute to 37% by volume ( We mentioned earlier that Petrol & Diesel are only 63% of the output from 1 Barrel of Crude)
Lets assume that all of this 37% of 150 Litres (I assume 9 Litres of wastage in crude processing/ Cost of refining etc ) is sold at the subsidised price of Rs 20/Litre
37% of 150 Litres = 55.5 Litres * Rs 20/Litre = Rs 1110
So on a conservative basis the total income generated from 1 Barrel of Crude Oil = Rs 6991.46
And whats the Cost of 1 Barrel at todays price …. Its only Rs 3534/-
Someone is making a whopping profit after adjusting for subsidy of Rs 3457 / Barrel. So from a simple calculation the cost of Petrol & Diesel can actually go down by another 50%.
Normally in India, the pricing of fuel varies by state, though central taxes still are part of the pump price of fuel. The Central and state government’s taxes make up nearly half of petrol’s pump price. Most States charge taxes that are higher than than the Central Tax. (Goa is an exception). States like Karnataka even charge an extra 2 Rs / Litre towards funds for building the metro. As a result, approximately 50% of the pump cost goes to the government in the form of different taxes. On the contrary, the dealer (shopowner) earns a paltry 1–2% of the pump price as his earning.
When the price of Crude came down from $110 to $50 – consumer prices have come down by less than 20%. Why is our price so high? Why are Mamta and Sitaram Yechury and Arvind Kejriwal not talking about this ? Why is Barkha not hosting a show on We the People – highlighting this discrepancy. Why is the Tax rate on Fuel so high – when millions of Aam Aadmi use this for their transportation daily – its not luxury or comfort its a necessity given the poor public transport we have in the country.
In City like New Delhi where you drive long distances – you fill up your tank worth Rs 2500/- almost 4 times a months – thats a 10K expense on Fuel , a 50% reduction would have saved millions in Delhi Rs 5K / Month or Rs 60,000/- a year – thats a lot more than what we can expect from additional Tax savings in a budget.
Is it right for a Government not to pass on benefits that are entitled to consumers. Can a PIL be filed by Prashant Bhushan on this – under the MRTP act – Isn’t the Government the monopoly (or almost monopoly) supplier of Oil to this country. Can the Media and the opposition raise this as an issue and earn some good will.
One comment on “Deciphering Petrol Pricing in India”
What is the basis of calculation for Rs 5881? I don’t get it. could you please clarify? Now, we have added only the production cost of petrol and diesel. Naptha refining cost should be included before getting into the profit. Another thing, what about the overhead cost spent by oil companies. Of course oil companies do make profit. they exist for that.
The other problem is state taxes. If the state taxes are lowered, where they will find fund for infrastructure? We need to take this all into account while looking the oil price rise in India, despite global sink in the oil prices.
There is another story to it. The number of oil consumers in India will increase exponentially over the years. Yes, currently the crude is cheaper. Imagine the state of affairs when the crude price shoot up. In that scenario we (India) cannot hike the rate all of a sudden. So there is game beyond economics. I presume in the long run, this gradual increase is reasonable. Above all, we need to move towards renewables and electric/solar vehicles. Plus local transportation increase. This will come only if the petrol prices are slightly higher. See the broader picture. Cheers. Sashi