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For an energy-hungry and crude-import-dependent economy such as India, nothing gladdens the heart of the finance ministry mandarins like the dipping price of crude oil. Rating agency ICRA has said on January 23 that with crude dipping below $80 a barrel, consumers can hope for a reduction in fuel prices since the crashing prices for some time has given the finance ministry enough cushion to slash prices of petro-products.

Ahead of the BJP seeking a consecutive third term in office, the government can afford to bring down retail prices of petrol and diesel that will directly cool inflation as well as immediate relief to the pocket of the average citizen.

ICRA said the declining prices of crude has raised the margins of the oil marketing companies which now stand at Rs 11 per litre on petrol and Rs 6 on diesel.

The PSU OMCs control as much as 90% of the domestic market.

The agency said lukewarm demand and increased production in Norway and Libya have pulled down benchmark crude prices below $80 a barrel. The margins of OMCs have become healthier since the retail prices of petrol and diesel prices have remained unchanged since May 2022. It was the time of high crude prices – well above $100 a barrel – and the government reduced excise duty for the second time to cushion the impact on the economy. That development followed the Russian aggression in Ukraine.

In the following months though crude prices kept moving up and down, the retail prices of the petro products did not change and for a long time the OMCs made major gains in margins. The periods of high profits were particularly between July and Sept 2023. Profits again returned since October 2023.

Though Rosneft-backed Nayara and Jio-BP reduced prices by Re 1/litre, the state-run OMCs kept selling at the earlier prices.

Significantly, a dip in retail petrol and diesel prices would cool inflation and help recharge the engine of consumption.

It was a time when the International Energy Agency and major brokerages projected the oil market tightening towards the end of 2023. It was also supposed to remain that way in early 2024.

Acting on that cue, policymakers did not intervene when OMCs kept up raking in hefty profits to act as a cushion in crude prices raised their heads again. Fortunately for the Indian economy, the crude prices did not swell. The latest IEA monthly oil report has stated that global crude supply would grow faster than demand in 2024.

What has raised hope of adequate supply in the global markets is that OPEC+ has projected a balanced market.