The Biggest fear of any Indian pertaining to Russia Ukraine war and more specifically if they own any form of fuel-based vehicle would be, “ab yeh petrol ka daam Kahan tak jayenga?”
The Crude Oil market has been on a Bull run for almost a year and the run seems to have no end in near future. The Brent crude prices have risen up almost 35% in just under 10 days and with more stringent restrictions and sanctions, the Brent crude is all likeliness could break the all-time high of $147.50 (achieved in July 2008). Every day the prices of Brent crude are gapping up by almost 8-10% and it is making all the vehicle owners nervous.
As of 7th March, the impact of increased crude oil prices has not yet been passed on to the consumers of the fuel. But with the constant pressure of increased crude oil prices, this impact is likely to be passed on to the consumers very soon. And, if the reports are to be believed then the oil companies are not more willing to bear the brunt and are looking to pass it on to the end-user.
Now, the big question in everyone’s mind is, how far high can the petrol prices go? Can Petrol prices cross Rs 200? Let us Find out:
- The current price of Petrol in Bangalore (per litre) = Rs. 100.56
- Losses Incurred per litre at the existing oil prices = Rs. 15
- So, the Breakeven prices of Petrol for companies would be = Rs. 115.56
- And the current price of Benchmark Crude Oil (WTI) is = $ 123
- Wti Crude oil price when the last time prices were changed = $ 81
- And the Current price of USD (in term of INR) = Rs. 76.90
And as we are aware that India is a net importer of Crude oil and it imports about 85% of the crude oil requirement of the country.
Interestingly, the oil prices have remained unchanged since Nov 2021, but during the same time the price of WTI crude has jumped up by almost 50%.
Owing to the elections the prices of petrol and diesel have remained unchanged over the last four months but that’s likely to change with the last phase of elections coming up. And the cost is likely to be passed on to the consumer.
So, to Breakeven the oil companies will have to increase the prices by almost Rs. 15 a litre at current crude oil levels.
And if the condition of the Russia-Ukraine war goes on the way it has been going on for some more time and if more stringent sanctions are imposed against Russia, then we could see Brent crude breaching the all-time high and which means the breakeven price (In Indian fuel Market) will also rise. Without accounting for any other expenses, the oil companies will have to increase the petrol and diesel prices in proportion to increased crude oil prices.
Say, the Oil prices were to climb up 30% from the current levels, then even the cost of fuel would also have to be up by 30% (from the breakeven price of Rs. 116) to the new breakeven price. So the new breakeven price would be = Rs. 151 (116*1.30)
And if the Oil prices were to climb up 50% from the current levels, then even the cost of fuel would also have to be up by 50% (from the breakeven price of Rs. 116) to the new breakeven price. So the new breakeven price would be = Rs. 174 (116*1.50) and so on.
And on top of this if the Rupee were to weaken against the dollar and breach the levels of Rs. 80 per USD, the price levels of Rs. 200 per litre of Petrol looks like a reality. Plus we have not talked about duties and all the other costs. But that’s a long shot. Let’s hope that some sanity prevails amongst the global leaders and we come to some peaceful conclusion in the ongoing war situation and normalcy returns to the world.
