SURGE IN THE PETROLEUM PRICES

 The retail price of petrol and diesel is decided after adding central excise, commission paid to dealers and value-added tax (VAT) to basic oil prices. The basic oil price is the prevailing international benchmark rate plus freight. 

Prices of petrol and diesel are market-determined, meaning that public sector oil marketing companies including Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum determine retail prices of petrol and diesel based on international prices of crude oil and other related products, currency exchange rates, tax structures, inland freight costs, etc., (As per the finance ministry informed Parliament in March) International prices are thus the determinants of prices of petroleum products in India, as per the ministry.

Global oil prices crashed to $19 per barrel in April 2020 as demand evaporated with most nations clamping lockdowns to control the spread of the novel coronavirus.
Demand recovered this year as vaccination against the infection revived economies worldwide.
International benchmark Brent crude has since rallied to $84 per barrel.
This, had made fuel expensive and was stoking fears of inflation.
India’s oil import bill had climbed from $8.8 billion in June 2020 quarter to $24 billion this year because of a spike in global oil prices.
Over two-thirds of the price paid for fuel comprises tax and other levies. As a result, less than a third of the retail petrol price in India is affected by a movement in crude prices. 
Saudi Arabia raised the pricing for its crude for shipment to Asia and the US. OPEC+ have also extended oil supply constraints, pointing to a tightening physical market.
India’s oil imports reached a three year high in December 2020 at 5 million bpd, boosting prices and accelerating destocking of the floating storage globally. 
Oil price decontrol is a one-way practice. When the global prices of crude oil increases, the burden is passed on to the consumer who pays the extra price for oil. When the reverse happens, the government slaps fresh taxes and levies to ensure that it rakes in extra revenues.
India recently came out of a technical recession but stagflation is still persisting, this rise in price will create an inflationary pressure.
Transportation cost will increase likewise giving rise to high volatility in the prices of volatile goods and less spending and demand by citizens.
The general impression among people seems to be that bringing petrol and diesel under GST will bring down their retail price. 
For petrol and diesel to be brought under GST, the rates will have to be very high, even higher than 100%. Only then will the government be able to earn the kind of money they currently are. So practically including them in GST can cause a further increase in the prices. 
 As governments are promoting renewable/green energy sectors like solar power,  there is a lack of investment in the oil sector. 
Consistently high fuel prices have pushed inflation up in the country in the past few months, the State Bank of India (SBI), India's largest state-owned bank, recently reported.  
The price of Brent Crude breached the $85 per barrel mark since few weeks reaching its highest level since 2018 on the back of a sharp increase in global demand as the world economy recovers from the pandemic.
The price of Brent crude has nearly doubled compared to the price of $42.5 per barrel a year ago. 
In its latest round of meetings, the OPEC+ group of oil producing countries reaffirmed that they would increase total crude oil supply by only 400,000 barrels per day in November despite a sharp increase in prices. The output of the top oil-producing countries , Saudi Arabia, Russia, Iraq, UAE and Kuwait would still be about 14 per cent lower than reference levels of production post the increase in November.
Low crude oil supply from the US has also played a key role in keeping crude oil prices elevated.  
India has seen a faster recovery in the consumption of petrol than of diesel after pandemic-related restrictions with petrol consumption up 9 per cent in September compared to the year ago period but diesel consumption remaining 6.5 per cent below 2020 levels. Diesel accounts for about 38 per cent of petroleum product consumption in India and is a key fuel used in industry and agriculture.
The government says it has been reaching out to key oil producing countries, asking them to boost production of crude oil. 
India has long pushed for Middle eastern countries to remove the “Asian premium” that Asian countries have to pay for crude oil as key oil producers set higher prices for India than for the US and European countries. 
Despite a 40 cent per barrel cut in the official selling price of light crude to Asia, Saudi Arabia is still charging a $1.30 premium on the benchmark price for light crude sold to India compared to a $2.4 discount on the benchmark price for European customers.
Experts have noted that countries like India do not have much bargaining power in the current market scenario where supply is lower than demand and that India’s bargaining power may be reduced further if we try to further diversify crude oil procurement. Also, the level of output and pricing benchmarks are decided by cartels such as OPEC. 
Saudi Arabia in response hiked the shipping cost of crude to India for July shipments to push back on India’s move to diversify imports.
India’s leading state owned oil refiners are also looking to club their demand to secure better deals on oil procurement. Experts noted however that while bunching of demand may help secure a better deal, an attempt to diversify consumption could conversely lead to lower discounts from individual countries.
As the world’s third-largest oil importer and consumer, India is running out of options as the relentless surge in international oil prices make it imperative to pass them on to consumers . 
India imports 85% of its crude oil needs and about half of its natural gas requirement. 
According to Mr. Abhishek Bansal , CMD, Abans group of companies “On the demand-supply scenario, crude oil prices should be around $65 a barrel but we have to add a risk premium of $5 a barrel for few months due to geopolitical tensions between U.S. and Iran’’.
Additionally, hurricanes Ida and Nicholas have impacted crude oil production in the US Gulf of Mexico region, when they hit in late August and September, respectively.
Last year, when we had lockdowns, natural gas, coal and oil storages could not get replenished to the usual extent, due to movement restrictions. As such, during winter, storages were drawn down as these natural resources were used to heat homes.  
At the same time, while truck drivers were considered essential employees and allowed to work, the training schools for these truck drivers were shut down. 
Going into the 2021 winter season, storages across Europe, particularly the UK, and parts of Asia are running at below average levels.  
We can distil down the future of oil and gas prices to essentially three factors: 1) Severity of the winter season ,current storage levels and 70-75% utilization ratios would likely be adequate for an average winter, but a hard European winter would keep prices elevated. 2) Fresh supply from Opec+ or the US, seems low probability right now given in its recent meeting, Opec+ only agreed to increase production moderately. Similarly, while the US has not increased production, it has been pressuring OPEC+ to ramp up production to control rising oil prices. 3. Fresh supply from Russia - while Gazprom could supply to Europe that can provide relief, their Nord Stream 2 pipeline’s approval has been pending for quite some time and Russia is trying to use this crisis to get that approval over the line. 
On November 1, 2021 prior to the duty cuts, central excise of Rs 32.90 a litre and VAT of 30 per cent in Delhi made up for 54 per cent of the retail selling price of diesel, according to price build-up of the fuel available from state-owned fuel retailers. 
 The total incidence of taxes on petrol has come down to 50 per cent and that on diesel to 40 per cent following a reduction.