The Oil Price Waltz: Who is to blame?

So the gas prices are up again. Oh wait! The diesel prices as well. But why is the
petrol price coming down?
The rates for these commodities literally dance up and down, throughout the
year.
This is something that matters to us. It affects us almost every day! So instead of
cursing the government for these fluctuating prices, lets get down to the
mechanism behind the pricing.
So lets first talk on a global level. The price of crude is dependent on a lot many
factors. The basic underlying factor takes us to simple economics. If the demand
increases, and supply does not, cost increases. This is basically whats happening
worldwide. The oil producing nations, comprising of OPEC (Organization of
Petroleum Exporting Countries), Canada, Russia, and so on, export their black
gold to the world. Individual counties then make deals with these countries and
buy their crude. Then respectively countries distil the crude into its fractions that
we are familiar of and then its used in its respective sectors. While this process
seems very simple and straight-forward, it is NOT. Firstly, the exporting countries
may have internal conflicts, which may hamper their local crude production
rates. This is the first reason for fluctuation of oil prices. Also, if the demand for
some reasons changes drastically, it will impact the price, as mentioned above.
The second factor brings us down to a national level TAXATION. Taxation varies
from country to country and depends on the government policies. Customs duty,
excise duty, special excise duty, education cess, sales tax and state cess, t o
name a few (getting into these will take four more volumes, so lets leave it at
that). Also, taxes vary from state to state in India. For example, in Delhi the price
of CNG is 38.15 Rs/Kg, whereas in Pune it is 47.5 Rs/Kg.
This usually is a transparent process in most countries. But in India, the story is
different. The amount of tax levied amounts to nearly 45% of the true value of
the fuel!
Transportation, cost of refining, retailer profit, and so on are the next factors that
come in. This along with other factors like geographic location, local competition
and foreign exchange finally help give a rate to the fuel.
The sharp fall in the oil prices have put the oil producing countries in misery, yet
at the same time, given a reason to oil importing countries much reason to
rejoice as they now will have to pay less to run their homes. How does this affect
India? The nation wants to know! As India basically imports about 75% of her
crude oil, its safe to say this will ease her current account deficits. At the same
time, it will increase the cost of Indias fuel subsidiaries, and this cost is only
going to increase if the oil prices remain low throughout the year.
On the 29th of September, there was to be a scheduled meeting between the
Cabinet Committee of Economic Affairs, headed by our Prime Minister, Mr

Narendra Modi, to talk about the Natural Gas Price hike(which did not take place
eventually). This hike supported by our oil ministry, was not taken down so well
by our power ministry. While the hike would cause increase in the prices of basic
commodities, to increase in our electricity bills, the price hike could also help
bring foreign investment in our country and improve the scope for Exploration
and Production in the Oil and Gas sector. Since its all up to the government now
and all we can do it debate, lets hope for the best.

Delhi Fuel price hike chart.

References:
http://www.aa.co.nz/cars/maintenance/fuel-prices-and-types/how-petrol-pricesare-calculated/
http://www.caltex.com/global/resources/determining-fuel-prices/
http://www.eia.gov/tools/faqs/faq.cfm?id=43&t=8
http://timesofindia.indiatimes.com/city/kolkata/Blame-Taxes-Not-Crude-

Price/articleshow/6093444.cms
http://timesofindia.indiatimes.com/business/india-business/Cabinet-likely-to-takeup-natural-gas-price-increase-today/articleshow/43321522.cms