Motorists are finally able to enjoy lower petrol prices at gas stations, thanks to easing global crude oil prices. But the quantum of fall in domestic fuel prices is no where close to the plunge we have seen in the international crude rates.

Since October 18 till date, petrol and diesel prices have declined about 10 percent in Mumbai. Global crude oil prices, on the other hand, have lost nearly 30 percent from the peak of $86.70 a barrel hit on October 3.

Following two reasons could explain this disparity:

Gate Pricing

Indian oil marketing companies (OMCs) follow gate pricing, the price at which products are transferred from refining to marketing. Gate pricing considers the international rates of fuel for two weeks, the exchange rate and freight, insurance, among other charges.

The price at which refiners sell fuel to retailers also include taxes, dealers’ commission.

The OMCs — Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) — control over 90 percent of the retail sales in fuel and are in charge of setting rates for the oil industry.

Pricing Mechanism

Another reason could be the pricing mechanism which is followed by these OMCs.

As per the country's pricing mechanism, domestic fuel prices depend on international fuel prices on a 15-day average, besides the value of the rupee. Hence, the sharp decline of the international oil prices will fully reflect only after a fortnight.

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