Fuel prices continue to surge amid tension in Middle East

New Delhi: The petrol and diesel prices continued to surge on Saturday as the price of petrol rose by 10-11 paise and that of diesel by 15-16 paise across all major cities.

According to the Indian Oil website, the petrol costs Rs 75.45 a litre in Delhi, Rs 81.04 per litre in Mumbai, Rs 78.04 a litre in Kolkata and Rs 78.39 a litre in Chennai after the revised rates were implemented on Saturday morning.

Similarly, diesel prices also saw an increase across all major cities.

Diesel now costs Rs 68.40 a litre in Delhi, Rs 71.72 a litre in Mumbai, Rs 70.76 per litre in Kolkata and Rs 72.28 a litre in Chennai after the increase on Saturday morning.

The oil prices jumped by $3 a barrel on Friday after a US airstrike killed a top Iranian general Qassem Soleimani, escalating major tension in the Middle East.

The retail prices of petrol and diesel are dependent on the global crude oil prices and the rupee-US dollar exchange rate as India imports 80 per cent of its crude requirements.

Domestic petrol and diesel prices are reviewed by oil marketing companies on a daily basis. Price revisions are implemented at the fuel stations with effect from 6 a.m.

Meanwhile, International benchmark Brent crude may surpass the $70 a barrel mark owing to a major escalation in tension between the two biggest oil producing nations, the US and Iran following a US airstrike killing one of Iran's most powerful military commanders, General Qasem Soleimani.

Brent crude prices closed 3.55 per cent higher at $68.60 a barrel (bbl) on Friday after surging as much as $69.50 a barrel.

Oil prices, Care Ratings, said was already on the rise due to the easing of tensions between the US and China and output cuts undertaken by OPEC .

"Now coupled with the US airstrike, price of Brent has the potential to increase and cross the USD 70/bbl mark in the coming few days, depending on the retaliation planned by the Iran government and the longevity of the feud continued by both the countries," Care Ratings said in a note.

Rising international oil prices gains significance as India imports over 80 per cent of its total oil requirements. In the current financial year India imported 4.5 mb/d (April-November) of crude oil and its import dependency based on consumption has increased to 84.5 per cent in comparison with 83.3 per cent a year ago in the corresponding period.

"Prices of petrol and diesel always react a little late to the rise in crude oil prices as State-run retailers fix fuel prices daily based on a complex algorithm of 15-day average international benchmark rates. Given the trend in oil prices, it is likely that fuel prices will increase in the next few days as well," Care Ratings said.

With the upcoming Union Budget which will be announced in a month's time, rise in oil prices can also pose a challenge for the government on the fiscal side and the assumption made for the year.

In the face of higher inflation, the options would be to either increase subsidy on the expenditure side or lower taxes (along with states) on the revenue side, Care Ratings added.