New fuel prices every new day: Who gains? How is it better?

Since June 16, prices of petrol and diesel are being revised every day; The Indian Express explains how the new mechanism works, what it aims to achieve, and how it has affected prices so far.

Written by Sandeep Singh | Updated: June 26, 2017 11:07 am
petrol prices, diesel prices, pump Next day’s price to be notified at 8 pm, effective from 6 the following morning. File

What is the new ‘daily dynamic price revision’ all about?

From June 16, 2017, the public-sector oil marketing companies started the system of daily price revision as against the previous system for auto fuel, where any revision would be taken fortnightly.

Is there a fixed time every day for revision of prices?

Yes, the price for any day will become effective from 6 am. Before that, oil companies will inform dealers at 8 pm about the next day’s price.

Is there a way to keep track of the changes without actually going to a fuel pump?

Customers can access the daily updated prices of petrol and diesel at all cities through a mobile app created by Indian Oil Corporation, Fuel@IOC. Alternatively, customers can also check the fuel price in their city by sending an SMS —RSP<SPACE>DEALER CODE — to 9224992249. Each petrol pump will display its dealer code prominently on its premises.

How have prices moved since this system was introduced?

Industry insiders say that the price is determined not only by the movement of crude oil price (the main raw material) but also by the rupee/dollar exchange rate and demand-supply situation in the market. While a deficit of the product leads to a rise in its price, an increase in supply will lead to a decrease. Over the first one week (June 16-22), the global crude oil price for the Indian basket fell by 2.5% — from $45.6 per barrel to $44.45 per barrel — and the price of petrol and diesel in Delhi came down by 1.6% and 1% respectively.

Who gains — the government, oil producers, oil marketing companies, retailers, or the customer?

This move will ensure that the benefit of even the smallest of changes in international oil prices is passed down the line to dealers and the end users everyday. It ensures that no party loses out for an entire fortnight in the event of a sharp fluctuation, as it used to be earlier when the revision happened only fortnightly. In case of a decline in crude oil prices, the benefit will be passed on to the customer the next day itself. In case of a rise in crude prices, oil marketing companies will be able to immediately pass on the price hike to the customers.

What else is the economic rationale behind all this?

Insiders say the move is aimed at bringing parity with international product prices — diesel and petrol. There is also a belief that daily dynamic pricing will rein in speculative market forces. Officials at OMCs say that when changes were fortnightly, it led to speculation in the market at times that prices would go up or come down and customers behaved accordingly. “While at a small level it may not seem big, at a national level it had a big impact. This will get reduced,” said a senior official with an OMC.

In what way is the new system better than earlier?

Prior to June 16, 2017, petrol and diesel retail prices were revised fortnightly, depending on fluctuations in international crude oil prices and the demand/supply situation in the country. Oil marketing companies say the daily revision will bring in more transparency within the system and it will also minimise the impact of increasing/decreasing prices on the working capital of companies and dealers.

Do other countries follow a system of daily fluctuations of fuel prices?

It is a practice in developed countries, including the United States and several European countries. There are some countries where prices change more than once during the day.

Now that India has switched to the new regime for auto fuel, is it possible that there will one day be daily price fluctuations also for other petro-products such as cooking gas, kerosene or motor oil?

Although the OMCs have done this change for petrol and diesel, LPG and kerosene are not yet deregulated and hence dynamic pricing cannot be implemented for them. However, for other products such as ATF, bitumen and motor oils, prices are revised on a monthly basis. When on bulk demand, prices are even negotiated with customers.

What is the big picture emerging out of the decision to allow daily fluctuations in the context of the Indian economy?

Directionally, this will take the economy towards greater transparency in fuel pricing and free pricing of petrol and diesel. If India moves towards free pricing, oil marketing companies and even dealers will be able to price their products in line with the competition in the market. While private-sector companies in certain cases offer petrol and diesel at a more competitive price, this will improve the ability of public sector OMCs, too, to offer competitive prices and even the dealers at their level can go ahead and offer lower prices to attract customers. This should finally benefit the customer.

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