Oil Prices to Increase by 3 to 6 percent

Consumers may experience an oil price per liter increase of 6% or Rs6.29 beginning February 1 after crude prices rise in the international market, according to officials of the government.

But OGRA, or the Oil and Gas Regulatory Authority, in its recently sent calculations to the Petroleum and Natural Resources’ Ministry, suggests that oil prices be kept unchanged in the month of February. An announcement of new petroleum product prices will be made in the coming days.

For January, petrol prices were also increased by the government to Rs1.65 for every liter. A similar rise of Rs5.13 per liter in HOBC or high octane blending component was also posted in spite of reductions in current crude oil prices and the recommendation of OGRA to maintain unchanged oil prices. But, costs of other petroleum products remained unaltered.

Officials said the petrol and high octane blending component’s price for the month of February may rise by 6% to cost Rs5.37 and Rs6.29 for each liter respectively. A similar 3% increase in oil prices may occur for high speed diesel and kerosene oil to reach Rs3.11 and Rs2.78 respectively. Finally, light diesel oil may increase by 4% to amount to Rs3.43 per liter.

Average crude oil price per barrel in the international market grew by $4 in January to cost $114 versus $110 in the month of December. The rupee has also posted a 1.2% decline from Rs89.3 to Rs90.3 for every dollar during the month of December and this resulted to costly oil imports.

At present, petrol, kerosene oil, HOBC, LDO and HSD are sold at a per liter price of Rs89.54, Rs89.24, Rs111.91, Rs86.78 and Rs98.82 respectively.

According to Ogra sources, the government was able to gather an additional revenue of Rs9 billion from taxes on general sales and levy on petroleum products between the month of July to December of 2011-2012 relative to the same period in the previous year.

If the government maintained oil prices, it will need to endure the effect of Rs3 billion of lost taxes and petroleum levy in the month of February according to sources. The sources further added that the amount may be absorbed since the government had collected extra revenue of Rs9 billion during the next half-year. It was a strong recommendation of Ogra not to pass on the effect to the customers who are already spending a huge amount for petroleum taxes.

Deregulation of petroleum products has already been done by the government. This includes petrol, LDO, HOBC, Jet fuels JP-1, JP-8 and JP-4 from the month of June in the previous year. Oil and gas marketing companies and refineries can proclaim ex-depot and ex-refinery prices every month while maintaining import prices in view. But, in a controlled environment, the government informs prices after the inland freight equalization margin and petroleum levy that come in its domain is fixed.

– By: Chris Termeer