Citizens of Mumbai now pay twice as much for gasoline as a citizen of New York City, Bloomberg has reported, with prices at the pump up 11 percent since the start of the year in India’s most populous city.
The price rise, however, has not got much to do with the latest trends in international oil prices, according to the report. It rather has to do with a series of increases in the sales tax, which, Bloomberg says, the government applied in an attempt to prop up public finances.
Since 2013, the sales tax on gasoline and diesel has risen almost six times and currently makes up about 60 percent of the end-price of the fuels. Gasoline and diesel account for more than 50 percent of India’s total oil consumption.
Prices at the pump are rising even though state refiners expected demand for gasoline to take a major hit from the surge in Covid-19 infections.
Argus reported last month Indian refiners expected demand for gasoline to shrink as much as 40 percent compared to pre-pandemic levels because of the lockdowns that the government imposed to stem the spread of the infection.
As a result of these forecasts, state-owned refiners plan to reduce their run rates to at least 80 percent this month, Argus also reported. This will, in turn, affect crude oil imports, which account for some 80 percent of the oil India consumes.
According to the report, the reduction in capacity utilization at state-owned refineries could lead to production cuts of some 290,000 bpd for gasoline and 700,000 bpd for diesel, from pre-pandemic consumption levels of 715,000 bpd for gasoline and 1.75 million bpd for diesel for June and July.
The pandemic led to a decline in India’s crude oil imports to 3.97 million bpd in the 12 months to March 2021. That was down by 11.8 percent from a year earlier, before Covid-19 spread globally.
By Charles Kennedy for Oilprice.com
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