How are companies able to sell oil after suffering a loss of Rs 20 on petrol and Rs 100 on diesel?

The Strait of Hormuz remained closed for a long time due to the conflict between Iran and Israel-America. Despite oil supply being disrupted, diesel and petrol prices did not increase in India. Even when the prices of petroleum products like diesel and petrol started skyrocketing in many countries of the world, both the things did not become expensive in India. Now the Government of India has said that the real price is being paid by the oil companies and they are incurring a loss of Rs 20 on one liter of petrol and Rs 100 on diesel. This is very interesting because in most states the price of diesel is less than Rs 90 but the loss to the companies is Rs 100 a litre.

There has not been much change in the prices of diesel and petrol in India for the last four years. The government has said that there is no plan to increase the prices of diesel and petrol as of now. Recently, the government also termed as fake the news in which it was being said that after the elections, oil prices in India may increase by about Rs 28 per litre.

What is the government saying?

On Thursday, Sujata Sharma, Joint Secretary of the Ministry of Petroleum and Natural Gas, gave information about the West Asia crisis. He said, ‘There has been a huge increase in the price of crude oil, yet oil prices have not been increased and the government is trying to keep the prices stable.’ Let us tell you that at the same time last year, the crude oil which was available at $70 per barrel is now available at $113. At the same time, the price of oil in India has neither been reduced nor increased much since April 2022.

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Let us tell you that India fulfills 88 percent of its oil needs through imports. Sujata Sharma has said that the effect of crude oil becoming expensive and prices being stable in India is that companies are incurring a loss of about Rs 20 per liter on petrol and about Rs 1 per liter on diesel. To keep oil prices stable, the government has imposed additional tax on oil exports so that there is no problem in domestic supply.

Why and how are companies selling oil after incurring losses?

Let us tell you that the Government of India has implemented a rule due to which oil companies do not have to reduce the price of oil in case the price of crude oil becomes less. Suppose crude oil becomes cheaper and oil companies buy it at Rs 30 per liter and sell petrol at Rs 90, then they get a margin of Rs 60 per liter. Now if oil becomes cheaper and companies get oil at Rs 10 only, then according to the new rules, they will not have to make oil cheaper and they will be able to earn a margin of Rs 80 per litre.

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Now, despite crude oil becoming cheaper several times in the last 3-4 years, the prices of diesel and petrol have not reduced, which means that these companies have earned good margins. Now in the situation of crisis, the same margin of these companies is being spent. For example, if now oil companies are buying oil at Rs 100 and have to sell it at Rs 80, then they are incurring a loss of Rs 20.

These companies are compensating for this loss with the margin already earned. The government had given another relief to these companies in which the government had reduced the excise duty on diesel and petrol. This did not make oil cheaper for the public but it reduced the losses incurred by the companies.