The oil price rallied by over 10 percent in two sessions, on the news of the vaccine. This would not have pleased the finance ministry one bit. That is because without having to break a sweat – the government achieved a mammoth 110 percent increase in account of Petroleum Levy. It goes without saying this is easily the highest ever quarterly PL collection – beating the previous highest by a whopping 43 percent.
It has happened primarily because international crude oil prices have stayed lowish for an extended period. Back in June 2020, when the budget documents had Petroleum Levy target envisaged at Rs450 billion, it sounded outlandish to say the least and laughable if one takes a leeway. The magic number would only be possible, if the government is able to fetch an average of Rs25/ltr in PL on both petrol and HSD throughout the year, while at the same time the petroleum consumption jumps by 10 percent.
And almost on cue – both things were possible simultaneously. The consumption grew by 7 percent year-on-year during 1QFY21 and the PL averaged close to the maximum allowed limit of Rs30/ltr. All this while, the government kept the product prices lower in year-on-year terms in double digits, and largely maintaining the prices on a sequential basis.
Add October to the fold as the sales numbers are out, and another Rs50 billion is expected to have been pocketed in lieu of PL. Nearly 30 percent of the annual target has been met in 1QFY21. Another Rs50 billion in October will have achieved 41 percent of the annual PL target in just four months. November too started on a good note, and if crude oil does not go skyrocketing in the next few days, necessitating the need to bring the PL down from the maximum Rs30/ltr limit, expect another round of Rs45-50 billion in November. In all likelihood, Rs235 billion in five months suddenly does not seem out of place. This is already more than any annual PL collection barring FY20. FY20’s Rs293 collected in PL could also be matched in just the 1HFY21.
The first half seems to have more than made up for any potential downside that there may be, as oil prices look destined to move north. Should the Pfizer vaccine show more promise, expect oil markets to go on a bull rally. That said, the supply dynamics have not changed overnight, and the recovery would not mean oil back to the $60s.
So, if the higher oil prices warrant the government to reduce the levy by say Rs10/ltr on petrol and HSD both, and the demand growth pattern continues – it is still all set to easily meet and breach the Rs450 billion PL collection target.
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