Petrol prices rose by 23 paise on Tuesday to Rs 99.71 per litre in Mumbai and Rs 93.44 in Delhi, a new record. Diesel prices too set a fresh record after rising 25 paise a litre on Tuesday. Diesel now costs Rs 91.57 in Mumbai and Rs 84.32 in Delhi.
Oil companies have raised rates of petrol and diesel by Rs 3.04 and Rs 3.59 per litre, respectively, since May 4 after keeping it unchanged for the preceding 18 days during state polls. Crude oil prices have, however, remained largely stable in May, trading mostly between $67 and $69 per barrel.
State oil companies are expected to daily align domestic fuel prices with international rates but they have dumped this practice for a year, making it harder to predict local fuel price patterns.
A steep tax, about 60% of retail prices, is the biggest reason why fuel prices are at record levels today even though crude oil prices are less than $70 per barrel.
The central government hasn’t cut fuel taxes despite wider demand as other sources of state revenues have weakened during the pandemic.
Domestic fuel prices can rise further in the coming months as analysts expect an oil rally ahead. Goldman Sachs expects oil prices to climb to $80 per barrel in the fourth quarter of the year mainly on wider vaccination that’s likely to boost travel and economic activity globally.
Rising domestic fuel prices are expected to stoke wider inflation in the economy at a time the country is faced with an unprecedented health crisis with lakhs of Covid infections and thousands of deaths reported daily.