Despite a seven-month drop in global oil prices, India's state-owned fuel retailers have been able to recover their losses after maintaining rates for a record-breaking five months despite rising costs.

As demand wanes due to recession worries, the price of international benchmark Brent crude last week dropped below USD 90 a barrel for the first time since early February. After recovering, it is now selling at USD 92.84 per barrel, the lowest price in the previous six months. Despite positive developments like Russia's decision to keep the North Stream pipeline offline and production cuts by the producers cartel OPEC and its partners (OPEC+), prices plummeted.

However, this has not resulted in any changes to India's retail pricing for petrol and diesel, which have been frozen for a record-breaking 158 days. Oil Minister Hardeep Singh Puri attempted to link the lack of a revision to losses state-owned fuel retailers incurred by maintaining rates when international oil prices climbed to multi-year highs in his Friday response to questioning from reporters regarding the lack of a revision. "Our (petrol and diesel) prices were already low while (international oil prices) were high, "Have we recovered all of our losses?" he said. He did not, however, go into detail about the losses experienced by maintaining rates unchanged since April 6.

On September 8, the average price of the crude oil that India buys was USD 88 per barrel. Its monthly average had been USD 102.97 in April before increasing to USD 109.51 in May and USD 116.01 in June. In July, when the Indian basket averaged USD 105.49 per barrel, prices began to decline. It was USD 97.40 on average in August and USD 92.87 so far in September.

To assist the government in controlling runaway inflation, state-owned fuel retailers Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) have opted not to exercise their right to adjust the retail selling price of petrol and diesel in accordance with international costs for more than five months.

At one time, they were losing Rs. 20-25 a litre on diesel and Rs. 14-18 a litre on petrol as worldwide oil prices surged. The decline in oil prices has reduced these losses. According to an official, there are currently no under-recovery (losses) on gasoline; however, diesel will take some time to achieve that level.

However, since oil companies will be permitted to recover losses they have accrued through selling fuel below cost during the previous five months, it is unlikely that this will result in an immediate decrease in rates, according to another official.  Puri had said on Friday that in order to provide some comfort, worldwide oil prices needed to remain at USD 88 per barrel or drop below. Since 85% of India's oil needs are imported, developments on the international markets directly affect retail pump prices.

IOC, BPCL, and HPCL are tasked with daily cost-based revisions to the retail price of petrol and diesel. However, they did so starting on November 4, 2021, shortly before elections in states like Uttar Pradesh, for a record 137 days.
When the previous freeze expired on March 22 of this year, prices increased by Rs. 10 per litre in just over a week before a new freeze started on April 7.

In the national capital, a litre of petrol costs Rs. 96.72 and a litre of diesel Rs. 89.62. As the government reduced excise duty to lower prices, this is a decrease from the Rs. 105.41 per litre of petrol and Rs. 96.67 per litre of diesel prices on April 6.

The Rs. 10 per litre price hike that took place between March 22 and April 6 wasn't enough to cover the cost, and the new freeze meant that more losses would accrue, according to officials. To assist the government in controlling inflation, which had already soared to a multi-year high, oil companies did not revise prices. If the cost of petrol and diesel had been raised, it would have increased even more.The three retailers suffered a combined net loss of Rs. 18,480 crore in the June quarter as a result of the freeze.

Diesel was deregulated in November 2014, and petrolin June 2010. Since that time, the government has stopped providing oil companies with any subsidies to make up for any losses they may have suffered from selling petroleum below cost. So when input costs decrease, the oil firms make up for their losses, the first official said.

The invasion of Ukraine by Russia on February 24 shocked the world's energy markets. As sanctions were placed on Russia's major exports by the international community, initial price spikes developed into persistent price increases. Before the invasion, Brent was trading at USD 90.21 per barrel. On March 6, it reached a 14-year high of USD 140.  On worries that a recession will cut into demand, some of the heat has been released from the oil markets in recent weeks. Since the country's zero-Covid policy has resulted in full or partial lockdowns in more than 70 cities since late August, China's imports of crude oil have decreased by 9% in the past month.