Why are petrol prices are so high even though fuel is an essential commodity?

Why are petrol prices are so high even though the fuel is an essential commodity?

The recent outbreak of Covid-19 resulted in a worldwide lockdown which affected almost all industries, especially the transportation industry. The movement of vehicles on air, land, and water significantly declined as people stayed indoors. After the situation came under control, there was a spike in petrol and diesel price. The petrol prices were once Rs 9.84 back in the 1990s. But today the petrol prices have increased almost 9 times and has recently crossed a century in India. And almost 2/3rd of the price is what we pay as tax. When petrol prices reached Rs 100, it seemed like a temporary problem that the state and center would both take to solve this issue. But it has been months, and the commoner still sees no relief. 

 

 The problem today is that out of what we pay for petrol, only 33% is its cost and the rest are taxed. According to the current prices, one barrel of petrol costs $75 or  Rs 5582. One barrel equals 159 Liters, which means the government buys one liter of crude oil for Rs. 35. After this, freight and insurance costs are added, and the crude oil is refined into different petroleum products like ATF, petrol, diesel, LPG, etc. Let's take petrol, the base price of one liter of petrol is 35 Rs, a dealers commission of 3.6 Rs is added, and the before-tax price of petrol is 38.6 Rs. The excise duty on every liter of petrol by the central government is 33 Rs. Different states charge different VAT rates.

 

 

 

 

Last year, because of lockdown and no International travel, the demand for crude oil crashed, and the prices slipped from $66 per barrel to $19 per barrel. During that time, the center raised taxes and gained extra revenue. But from October 2020, things started inclining back to normal, and the demand for fuel started rising. When demand increased, global prices also increased (Law of Demand). Crude oil prices went up by 150%; a global cartel controls oil prices worldwide; this cartel is called OPEC (Organization of the petroleum exporting countries), which controls 75% of the world's crude oil output. When for any reason, global oil prices start falling, these countries reduce the production of oil as well. If there is less oil in the world, global prices will increase for sure.OPEC countries have reduced their production by an extra one million barrels per day. Hence the global price will increase more in the coming times.

 

 In 2013 India bought one barrel of petrol for $110, but today it is bought only at $55, but still, fuel is more expensive than before. Whether a person buys petrol or diesel directly or not, but when petrol price rises it leads to inflation, i.e., whether we directly buy petrol/diesel or not, the food that comes on our plate is bought by traders from the farm to the final markets. If transport cost rises, it is passed on to the end consumer. Hence, because of inflation, the price of the day-to-day necessities also rises, impacting the commoner.