Friday, June 6, 2008

Petrol price vis-à-vis diesel and kerosene prices

The price of crude oil has touched $132 a barrel. As 1 barrel is 159 litres, assuming a rupee/dollar exchange rate of 42, cost of crude oil (or petrol) per litre should have been around 35 rupees (plus manufacturing and transportation costs, profit). But petrol is sold at Rs. 56 per litre!

The main reasons for such a difference are two.
1. Import duties/sales tax on crude oil/petrol by central and state governments
2. Petrol price is increased disproportionately for the cross subsidization of kerosene and diesel as the later two are common man’s fuels

Kerosene is used by millions of poor in India and a rise in kerosene price would affect them severely. Diesel is used in trucks and trains which do mass transportation of essential commodities. Since a huge hike in these two would affect the concerned and the common populace very badly, government usually refrains from increasing their prices, or if increased, less compared to that of petrol.

But there are few things that need to be considered. One, kerosene is widely used for adulterating petrol as there is a price difference between them. Two, most of the (luxury)cars nowadays have diesel variants to exploit the price difference meant for a different cause. But then the sheer number of Indian common man may justify government’s decision to continue subsidizing kerosene and diesel.

Did you know that petrol sells at Rs. 113.30 a litre in Turkey, while it is just Rs. 2.12 a litre in Venezuela?

After the recent surge in global oil prices, and a subsequent increase of petrol/diesel prices in India, Rediff has compiled this great article about world’s costliest and cheapest petrol.


Bandish said...

hey jithu,
Thanks a lot for writing such a beautiful article...please keep up the good work..

Bandish Shah

fuel trailers said...

The price of oil will continue to differ depending on the law of supply and demand. I hope that helped.

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