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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  1. K
    Kumar Alap
    Jul 5, 2017 at 3:18 pm
    Now after the rise in petrol prices, another shift would be use of Digital medium to buy / Sell Cars. Digital will be the medium of future and entire Automobile Industry will witness its impact very soon. No wonder even Car s will start to happen through Online channels and Luxury segment should initiate the process. Auto Service Industry is already undergoing a paradigm shift and from Car service to Auto Insurance, Car Loan, Car / Re , customers are using Online to pay, explore 7 Choose the best service provided. I recently came across one channel who helped me a lot. s: bookservicing / It was worth my time and effort and their services were flawless and customized as per my requirement. Kudos to them!
    1. Tharanath Aswathanarayana Mupadighatta
      Jun 27, 2017 at 7:15 am
      In other countries inventory is maintained by omcs . Here dealer maintains the inventory , presently all dealers are loosing 5000 rsto 20000 rs daily .afded to this the dealer looses on transist of product too , by pilferage . Omcs spent crores to together on vehicle tracking god devices , but it's in vain , same way automation at ros is to put dated , auto rate change feature is still a dream come true . Omc dealers are loosing heavily in this new RSP change daily .
      1. R
        Jun 27, 2017 at 1:32 am
        Sportscaster Chandra Commitee has not been implemented. ATF and stock transfer is made at 15 Degree Celsius and dealer is billed at 35 to 40 degree. Coefficient of expansion is 1.28 liter per 1000 liter per degree for petrol and it's .86 for diesel Imagine how much product expands per supply location and where does it go This scam is bigger than 3g or coal or any scam Think!!
        1. R
          Jun 27, 2017 at 1:24 am
          Did d govt take into consideration the dealer of whom 80 are low selling. Low selling pumps will not survive bse there margins are very low and pump is a volume game Further OMC are corrupt The pumps are supplied short Chip episode only happened bse of OMC who is equally responsible as such event cannot happen without officer of oil company and weight and measure deptt The OMC sell extra fuel obtained from short supply through selected pumps. Burning of Jaipur depth was one of d reasons There are many video on where oil is being stolen from locked tankers It sounds absurd but petrol pump are bundhua mazdoor whose valuable land has been leased by oil company at very low rent not more than 5k and who can exit but will not get back the land If d lease is cancelled many pump owners will exit TOI should already investigate but the irony is no one is there to understand d flight of a dealer Oil company r floating d norms even RTI Documents can be provided but if some1 is intereste
          1. R
            Jun 26, 2017 at 8:43 pm
            Every step the government takes is always purportedly in customer's interest. Has the consumer ever benefited? Nay. Instead it is always the corporate world which benefits from such decisions. Why? This government of the people for the people and by the people never works for the people but keeps industry's interests in mind for the simple reason that most industrial houses fund corrupt politicians to further their business interests. The situation may become chaotic with this pricing system in a backward country like India. It might help the petrol pumps to manipulate supplies in the intervening period of 10 hours i.e. between 8pm and 6am.
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