State-owned oil marketing companies (OMCs) in India are estimated to be gaining ₹15 a litre on petrol and ₹12 a litre on diesel as global crude oil prices continue to decline.

Analysts expect the government to partially absorb the oil price gain to lower the fiscal deficit, while consumers could expect some price relief in the poll season. The price of the Indian basket of crude oil averaged $74 per barrel in September, down from about $83-84 a barrel in March when petrol and diesel prices were last cut.

Rating agency Icra anticipates that there is headroom for a downward revision of retail fuel prices if crude prices remain stable at current levels.

“The retail selling price have been unchanged since March 2024 — ₹2 per litre was reduced on petrol and diesel on March — and there appears to be headroom for their downward revision by ₹2-3 per litre, if crude prices remain stable,” Girishkumar Kadam, senior VP, Icra, said.

The potential benefits of lower fuel prices for Indian consumers may be tempered by the government’s decision on how to allocate the windfall gains.

The gap between crude oil prices and the base price is widening, due to falling crude oil price, thus resulting in windfall gains for oil marketing companies in India.

The present price break up of retail petrol price comprises 59 per cent fuel costs and remaining 41 per cent as taxes and dealer commissions.

A Bank of America report said: “Barring any adjustment, the government can look at a gain of almost ₹110 billion in revenue / profits annually for the additional rupee oil companies make on petroleum products, thus making the gains potentially be close to ₹1 trillion on an annualised basis, or 0.30 per cent of GDP, if these numbers hold for another year or so.”

The decline in crude prices is primarily due to weak global economic growth, high US production and the Opec+ decision to roll back its production cuts. Weak demand from China and Europe has also contributed to the price slump.