Indian fuel price hikes threaten demand recovery

: Oil products
21/02/16

Indian state-controlled refiners have increased domestic jet fuel prices for the second half of February by nearly 4pc from the previous two weeks, on top of a 2pc rise in the first half of the month. Prices of gasoline and diesel also continue to set new records every day as rising crude prices and all-time high taxes threaten to hurt domestic consumption.

Prices of jet fuel in Delhi rose to 55,738 rupees/kilolitre ($764/kl) for second-half February from Rs53,795/kl in the first half, according to state-controlled refiner IOC. Airlines fear that the sustained increase in rates will either hurt passenger traffic if ticket prices are increased or cripple the carriers' finances if they absorb the fuel hikes. International flights continue to be banned because of Covid-19 restrictions except by special arrangement.

Jet fuel accounts for around 40pc of costs at Indian carriers, twice as much as for foreign airlines because of higher taxes. Rates are adjusted every two weeks.

India's jet fuel demand is forecast to shrink by over half to 81,000 b/d in the April 2020-March 2021 period from 173,000 b/d a year earlier, according to the oil ministry.

Gasoline prices are at an all-time high with the premium grade costing more than Rs102/l at Ganganagar in northwest India's Rajasthan state. Gasoline retails at over Rs89/l in Delhi where state taxes are lower.

Some retail outlets have shut because they lack a pricing system to reflect a three-digit price for gasoline. The current system never made provision for prices reaching Rs100/l, values not seen even when global crude traded at a record $147/bl in 2008, more than twice of what it trades today.

Prime minister Narendra Modi's government has increased fuel taxes substantially since coming to power in 2014. India's federal and state fuel taxes at around 61pc and 56pc on gasoline and diesel respectively are steep, even for a relatively lower taxed state such as Delhi.

Diesel costs a record Rs80/l in Delhi and more than Rs87/l in Mumbai.

There is evidence of surging retail prices starting to hurt demand, which has only started to rebound from the impact of Covid-19 on the economy. Demand for diesel, which accounts for over 40pc of the country's fuel mix, fell to 1.64mn b/d in January from 1.73mn b/d in December, according to oil ministry data. Gasoline use fell to 711,000 b/d last month from 736,000 b/d in December.

By S Dinakar

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