As the world economy is on the verge of booming again after the pandemic, the price of Brent Crude had broken the $85 per barrel mark, reaching its zenith since 2018. This has come along with a steep rise in the global demand. Despite a sharp increase in global fuel prices, the key oil suppliers have kept crude oil supply gradually increasing.

However, the low crude oil supply from the US had a major role in keeping crude oil prices inflated. There was a hike in the prices of petrol and diesel, accompanied by a sharp surge in the price of crude oil for the first time in 137 days since November 2, 2021. This may be attributed to Indian oil marketing companies (OMCs).

Moreover, when the fuel prices were last revised by companies, a 45% steep rise in the price of Brent crude was observed. The price elevated from USD 81.6 per barrel to USD 118.5 per barrel during March 2022. Fuel prices in India are revised daily with the help of a 15-day rolling average of benchmark prices. Since about 85% of the Indian crude oil requirements are met through imports, there is a rapid rise in fuel prices in India.

Apart from this, the oil price elevation can be ascribed more to the already prevalent high inflation, thereby shifting the consumption demand curve inwards. The government comprehends that inflation can reduce the purchasing power of consumers. The elevation in tax levels also has a major role in the increasing fuel prices. Furthermore, there is a higher demand for these fuels than their supply. The existing supply of these goods is not enough to exhaust the current demand. All of this together has caused a strong negative impact on fuel prices.

Impact of the Russia–Ukraine War on Fuel Prices

Due to the ongoing Russia–Ukraine war, there were fears that the oil and gas supplies from Russia would be disrupted. About 33.33% of the European natural gas demand is exhausted by the Russian supply. Another prominent point to be noted is that these commodities are transported across the Ukrainian borders, as the pipelines are laid across Ukraine.

However, India could do without them to some extent because Russia accounts for a very tiny percentage of oil and gas imports in India.

Determination of Oil Prices in India

State-owned OMCs like Bharat Petroleum, Indian Oil, and Hindustan Petroleum determine the oil prices persisting in the nation. Majorly, four contributing elements determine the cost of petrol and diesel in the country. It involves a series of steps as shown below:

• Brent Crude oil in India is imported from the Organization of the Petroleum Exporting Countries (OPEC) members.
• After this, crude oil is processed by boiling, and it then undergoes fractional distillation to separate various fuels and gases.
• The Central government then decides the base price for these fuels, like petrol and diesel.
• Once the base price of these fuels is decided, the processing and freight charges are added to them.