OnDemand WTP Pricing Research

How petrol, diesel prices are fixed and why they change every day | Business Today

Fuel prices in the country are again at an all-time high today. A litre of petrol in Mumbai will cost the buyer Rs 86.72, while it is Rs 79.31 in Delhi, Rs 82.22 in Kolkata and Rs 82.41 in Chennai. Diesel, on the other hand, is being sold at Rs 71.34 in Delhi, Rs 74.19 in Kolkata, Rs 75.74 in Mumbai and Rs 75.39 in Chennai.

However, what determines petrol and diesel prices and why does it change every day?

The prices of petrol and diesel are determined by various factors. First the cost of crude oil, second the taxes the Centre and states impose. There’s also dealer’s commission and VAT that gets added before it’s sold to the consumer. Petrol and diesel are expensive, primarily, because of the central and state taxes, otherwise it would be much cheaper. Taxes on fuels is a huge revenue generator for the government, and it’s a tough decision for the governments – Centre and states – to cut it to reduce fuel prices.

As for the everyday change in fuel prices, it’s because of a dynamic pricing system that reflects fluctuations in global oil market. Earlier petrol prices were revised every fortnight, meaning that unlike now, the prices changed on the 1st and 16th of every month. However, on June 16, 2017, a new scheme was implemented under which prices were to be revised every morning at 6 am. This shift from administrative price mechanism (APM) to dynamic pricing was done to ensure that the benefit of the smallest change in international oil prices can be put into effect by dealers. Moreover, the move was made keeping in mind that it would prevent huge leaps in prices at the end of the fortnight.

Read complete article here:

How petrol, diesel prices are fixed and why they change every day.