OMCs slash fuel prices further, customers continue to favour petrol vehicles

A fortnight after the last update to fuel prices, oil marketing companies (OMCs) in India yesterday announced a further reduction in the basic price of petrol and diesel by Rs 2.00 per litre apiece.

This follows a cut of petrol prices by Rs 0.31 per litre and diesel prices by Rs 0.71 per litre announced on June 30, 2015.  This is on the back of decreases in the international price of petrol and diesel, coupled with appreciation of the INR-USD exchange rate.

Effective July 16, a litre of petrol will cost Rs 66.90 in Delhi, Rs 71.57 in Kolkata, Rs 71.97 in Mumbai and Rs 67.29 in Chennai, while a litre of diesel will retail at Rs 49.72 in Delhi, Rs 52.75 in Kolkata, Rs 55.15 in Mumbai and Rs 51.08 in Chennai.

A historical data analysis by Autocar Professional revealed a shift in the fuel preference of buyers of passenger vehicles in the past two years. While 52.8% of the passenger vehicles sold in Q1 2013 were powered by a diesel engine, the figure dropped to 43.6% in the same quarter this year.

In Q1 2013, 46.1% of new passenger vehicles sold were powered by petrol. This number increased to 56.0% in Q1 2015, a clear indicator of the increasing appeal of the lighter fuel. A study of the sales figures of individual car manufacturers also confirms this hypothesis. For instance, Maruti Suzuki, the country’s largest passenger car manufacturer, reported an increase of 22.7% in petrol vehicle sales in Q1 2015 versus Q1 2013. It sold 232,494 vehicles powered by petrol engines in the first quarter this year. Its diesel vehicle sales, however, dropped 24.4% to 84,676 units in Q1 2015 vis-à-vis Q1 2013.  

A detailed look at the difference between petrol and diesel prices (Mumbai) over the past two years reveals that the gap was highest on Sep 1, 2013, at Rs 24.76 per litre. Barring few exceptions, the gap has been steadily reducing over the period, with the lowest being Rs 9.15 per litre on August 31, 2014. A graphical representation of the data also seems to indicate a strong correlation between the reducing gap between petrol and diesel prices and the tendency of the passenger car buyer to opt for a petrol engine instead of a diesel.

India imports close to 80% of its oil requirements, which makes the domestic oil prices highly dependent on the international rates. With Iranian oil expected to hit the global markets soon and with USA and Saudi Arabia continuing oil production in high volumes, crude oil prices are expected to decline further, leading analysts to anticipate further reduction in petrol and diesel prices in the domestic market. It will be interesting to see which type of fuel – petrol or diesel – will get a higher price reduction. This would determine whether the price difference between the two increases or reduces, thereby impacting the direction in which the industry moves.