April (fooled) petroleum price

Unless, it is one of those April’s Fool jokes, the government did not announce revised petroleum prices for April 2020. So, it now becomes increasingly clear that the petroleum component of the relief package will be no more than a hoax, put mildly.

International crude oil since March 23, the cut-off at which the interim March relief was announced, have come down further. What was an average of $38/bbl for Brent crude till March 23, has become an average of $35/bbl till March 28. That is another $3/bbl not included in the detailed computation for April petroleum prices.

Recall that the base petroleum price calculated for March 25 relief, had also fallen mysteriously short of actual price decline under normal circumstances (see: Petrol price: daylight robbery, published Mar 27, 2020). The relief of Rs15/ltr on both petrol and diesel was already significantly lower than actual oil price decline. Let alone the relief, the price decision actually robbed the consumers off.

Unless of course, the government wants you to believe that Rs15/ltr reduction in petroleum products’ prices for the next three months – will translate into Rs75 billion. Even Rs30/ltr combined reduction on HSD and petrol would not add up to Rs75 billion, under the current suppressed demand scenario – where petrol sales are likely to hit record lows.

The government can still try to paint it as a relief, by saying the PL could have been stretched to the maximum limit of Rs30/ltr. Since the government has been generous enough to not go pass Rs20/ltr on petrol (still the highest ever), the potential increase not imposed could be read as a relief here. But try adding even that to Rs75 billion – when sales are likely to tank to new lows.

What is worth noting is that the government could have instead decided to substantially lower the PL, without taking a major hit on its revenue. With petroleum demand likely to stay substantially lower than usual, the government does not stand to lose (or gain) much in lieu of PL. A much higher price reduction could have very easily made way, without making a big dent on revenue. The impact on inflation could have bene much bigger as well (see: Higher PL: Penny-wise, pound foolish? published March 6, 2020)