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Friday, June 05, 2020

As OMCs pass on crude price slide, jet fuel down but no pass-through for auto fuels

Experts say that the demand for ATF has collapsed as it is only being used for cargo transport, relief and rescue work, as well as emergency services.

Written by Karunjit Singh | New Delhi | Published: May 11, 2020 3:16:28 am
aviation turbine fuel, aviation turbine fuel price, aviation turbine fuel cost, aviation turbine fuel hike, crude oil price, Domestic flights have been suspended since March 25, after Prime Minister Narendra Modi announced a lockdown to control the spread of the COVID-19 pandemic. (File Photo)

The price of aviation turbine fuel (ATF) has fallen by about 65 per cent to Rs 22.54 per litre in the Capital since the beginning of the year, as the price of crude oil has crashed. The price of ATF, used by the aviation industry, has kept face with the collapse in international crude prices — with the price of Brent crude having fallen by 55.1 per cent since January — even as the price of petrol in the Capital has fallen by only 5 per cent and that of diesel has risen by 2.1 per cent due to higher levies by the central and state governments.

Experts say that the demand for ATF has collapsed as it is only being used for cargo transport, relief and rescue work, as well as emergency services.

Domestic flights have been suspended since March 25, after Prime Minister Narendra Modi announced a lockdown to control the spread of the COVID-19 pandemic. They are expected to resume operations at 25-30 per cent of their pre-lockdown capacity by mid-May. National carrier Air India is currently conducting operations to repatriate Indians stranded in 16 countries.

An official at a leading oil marketing company (OMC), who did not wish to be named, said that the demand for ATF had fallen by about 90-95 per cent compared to demand levels before the global COVID-19 outbreak and lockdown.

According to Abhijit Bora, senior analyst at brokerage firm Sharekhan by BNP Paribas, the price of ATF was linked with Asian benchmark prices for the fuel.

“We are in an unprecedented situation where OMCs are making losses and lower margins in the refining business. With the demand for ATF going away, these companies may be making negative margins,” said Bora, adding that OMCs were using higher marketing margins on petrol and diesel to make up for refining losses as there was still 30-40 per cent of pre-lockdown demand for petrol and diesel.

The central and state governments have also increased levies on both diesel and petrol to boost revenues and make up for the revenue lost due to the nationwide lockdown.

The Centre has hiked excise duty on petrol by Rs 13 per litre and on diesel by Rs 16 per litre, while a number of state governments have hiked the value added tax (VAT) on petrol and diesel, with Delhi, Haryana and Tamil Nadu hiking the VAT on automotive fuels this month.

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