Another petrol price cut in the offing?

Oil marketing companies may cut petrol prices by Rs 2 to make room for an increase in diesel prices, Business Standard reported today .

If the cut happens, it will be the second cut after a steep Rs 7.5 hike announced in May.Earlier, under pressure from the allies and the Opposition, the government had forced companies to cut prices by Rs 2.

International crude oil prices have declined over the past two weeks, which will give enough legroom to reduce petrol prices, which are deregulated and linked to the market. Oil firms review petrol prices fortnightly.

The average global oil prices were around $124 per barrel, when the increase was announced, the newspaper report quoted an oil company official as saying. Apart from the international oil prices, a sharp fall in the rupee against the dollar, making the oil import costlier, was another reason to increase the petrol prices.

A fall in the average price to $116 had enabled the earlier cut. Now, the average price has further fallen to $108 in the current fortnight, the official said.

Diesel prices are still administered by the government and oil marketing companies complain the subsidised sale of diesel is hurting their profitability.

Interestingly, the likely petrol price cut, if it happens, is not coming after a sharp appreciation of the rupee either. On Monday, the rupee closed at 55.73 against the dollar.

Clearly, the government’s attempt is to offset a price increase by a price cut, at a time when analysts and investors are prodding the government for bolder steps to contain ever widening fiscal and current account deficits.