Covid-19 crisis: Unlock 1.0 to revive fuel sales soon, says Indian Oil

Fuel sales had dropped in April after Prime Minister Narendra Modi announced a nationwide lockdown to control the spread of Covid-19 infection

Weeks after the coronavirus lockdown led to fuel sales nosediving to record lows, Indian Oil Corp (IOC), the nation's largest oil firm, sees demand returning with the resumption of economic activities.

The company said though it is on track to spend the approved capital expenditure for 2020-21, it has "critically examined all capex proposals for rationalisation of cost and time frame." "The company is also conscious of the costs and has also undertaken rationalisation measures in this direction," it said without giving details.

Fuel sales had dropped in April after Prime Minister Narendra Modi announced a nationwide lockdown to control the spread of Covid-19 infections. The lockdown shut factories and offices, took most vehicles off roads, stopped train movement and suspended air travel.

"The demand for the petroleum products dropped by 46 per cent in April 2020. The sales of petrol, diesel and jet fuel (ATF) in April 2020 were down by 61 per cent, 56.7 per cent and 91.5 per cent respectively as compared to April 2019," it said in a regulatory filing on impact of Covid-19.

Due to certain relaxations by the Centre and some state governments starting last month, sales for the products improved in May as compared to April 2020. "However, the sale for these three products was still lower by 38.9 per cent as compared to May 2019." India will see more opening up from June 8 with malls and markets resuming operations.

Why India's upcoming general election is good news for the oil market

Election campaigning will boost fuel use in a nation where oil demand is already growing at the fastest pace in the world.

The largest democratic exercise on Earth is set to give the oil market a shot in the arm.

About 875 million Indians will go to polls over the next three months to elect their leader, dwarfing the 158 million Americans who registered to vote in the 2016 US residential elections. Before they vote, they’ll be courted by a slew of competing political parties -- a process that will boost fuel use in a nation where oil demand is already growing at the fastest pace in the world.

The lift will be provided by hordes of party faithful, who traverse teeming cities and remote villages across the world’s seventh-largest country in a campaigning frenzy before what’s expected to be a closely fought election. Their use of motorcycles and sports utility vehicles at a time when some refineries are closed for maintenance will support returns from making fuels in Asia over the next few months, according to a Bloomberg survey of traders who participate in the market.

“The election, which coincides with scheduled maintenance, should see India pull imports of gasoil and gasoline and this usually adds to bullish sentiment,” said WengInn Chin, a senior oil market analyst at Facts Global Energy in Singapore. In the lead up to the polls, the increased consumption is expected to increase gasoline and diesel demand by as much as 80,000 barrels a day, he said.

That will be in addition to the nation’s already growing demand for gasoline and diesel, consumption of which grew by about 75,000 barrels a day and 100,000 barrels a day, respectively, in January. Demand for liquefied petroleum gas is also surging, with state refiners seeking to import cargoes of the cooking fuel as the government tries to keep voter morale high by ensuring rural households are well supplied.

The profit from turning crude into diesel reached a two-month high late last month, and has climbed over 25 percent so far this year. Refinery maintenance will keep supplies tight in coming months, while the International Maritime Organization’s new rules on ship fuel next year will drive the fuel’s demand in the longer term. That’s set to keep the so-called crack at an average of $14.50 a barrel this month, according to the Bloomberg survey of traders.

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Petrol inches close to Rs 81 a litre in Delhi after 5th straight price hike

While Opposition parties led by the Congress have called for a 'Bharat Bandh' to protest the rising fuel prices in the country, Left parties have announced a separate shutdown of their own.

Bharat Bandh : Adding to the woes of the common man, petrol and diesel prices were again raised on Monday, a fifth straight day of price hike in as many days by oil marketing companies. In Delhi, petrol continued its upward march in the previously uncharted territory of above the Rs 80 mark -- the price was raised by 23 paise a litre on Monday to Rs 80.73. The price of petrol in Delhi crossed the Rs 80 mark for the first time on Saturday, September 8.

Similarly, petrol prices in Mumbai were raised by 22 paise to Rs 88.12 a litre.

Another key transport fuel, diesel, also witnessed a similar hike of 22 paise in Delhi and 23 paise in Mumbai. Diesel now costs Rs 72.83 a litre and Rs 77.32 in Delhi and Mumbai, respectively.

Opposition parties like the Janata Dal-Secular (JD-S), Samajwadi Party (SP), Bahujan Samaj Party (BSP), Dravida Munnetra Kazhagam (DMK), Rashtriya Janata Dal (RJD), Nationalist Congress Party (NCP) and Maharashtra Navanirman Sena (MNS), led by the Congress party, have called for a 'Bharat Bandh' to protest the rising fuel prices in the country. Left parties have announced a separate shutdown of their own.

Other parties such as Trinamool Congress, Aam Admi Party and Biju Janata Dal have voiced their concerns over the price hike, however, they have stayed away from the street protests called by the Congress.

Congress leaders Sushil Kumar Shinde, Rajiv Satav and Amit Chavda in a press conference in Ahmedabad said that the Modi government pocketed Rs 11 trillion from the public by raising taxes on fuel and not including petrol and diesel under GST.

"The government has the power to reduce prices. It appears the government lacks coordination with oil companies which has resulted in the rise in prices of petrol, diesel and cooking gas on a daily basis," Shinde said.

Meanwhile, Rajasthan Chief Minister Vasundhara Raje announced a 4 per cent cut in the state value-added tax (VAT) on petrol and diesel on Sunday to reduce their prices by Rs 2.5 per litre in the state. VAT on petrol would be reduced from 30 to 26 per cent and on diesel from 22 to 18 per cent, Raje announced at a public meeting.

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Petrol crosses Rs 77 mark on rising global rates; diesel at Rs 68.50

Retail selling prices have been firming up since July 30 as international rates inched up.

Petrol prices have crossed the Rs 77 a litre mark for the first time in two months due to firming international rates.

Petrol price in Delhi was on Tuesday hiked by 9 paisa a litre to Rs 77.06 while diesel rates went up by 6 paisa to Rs 68.50 per litre, according to daily price notification issued by state-owned oil firms.

Fuel prices in Delhi are the cheapest in all metros and most state capitals due to lower sales tax or VAT.

Retail selling prices have been firming up since July 30 as international rates inched up. Rates have risen by Rs 0.90 a litre in case of petrol in nine days while diesel prices have risen by Rs 0.88 per litre.

Petrol price had touched an all-time high of Rs 78.43 a litre on May 29 and had since receded. On that day, the diesel price had touched an all-time high of Rs 69.30.

Petrol was last above the Rs 77-mark on June 9 when it was priced at Rs 77.02 a litre in Delhi. On that day, diesel was priced at Rs 68.28 per litre.

State-owned oil firms had in mid-June last year dumped 15-year practice of revising rates on 1st and 16th of every month in favour of daily price revisions.

High prices have off-and-on triggered demands for a reduction in excise duty but the government had ruled out any immediate cut.

The Centre currently levies a total of Rs 19.48 per litre of excise duty on petrol and Rs 15.33 per litre on diesel. On top of this, states levy Value Added Tax (VAT) - the lowest being in Andaman and Nicobar Islands where a 6 per cent sales tax is charged on both the fuel.

Mumbai has the highest VAT of 39.12 per cent on petrol, while Telangana levies the highest VAT of 26 per cent on diesel. Delhi charges a VAT of 27 per cent on petrol and 17.24 per cent on diesel.

The central government had raised excise duty on petrol by Rs 11.77 a litre and that on diesel by 13.47 a litre in nine installments between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre.

This led to its excise collections from petro goods more than doubling in last four years - from Rs 991.84 billion in 2014-15 to Rs 2290.19 billion in 2017-18. States saw their VAT revenue from petro goods rise from Rs 1371.57 billion in 2014-15 to Rs 1840.91 billion in 2017-18.

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