Fuel Prices Today: Intro, Types, Importance, Factors that influence & FAQ

Introduction to Fuel Prices

Fuel prices in India are revised every day at 6 AM with effect from June 2017. In other words, a dynamic fuel price method is followed. The prices of fuels keep fluctuating due to various factors, which we will discuss in the following sections. Read ahead to learn all about fuel pricing in India.

Types of Fuels

Fuel prices refer to the cost of different types of fuels that power vehicles, aircraft and machinery. The fuels include

• Petrol
• Diesel
• CNG (Compressed Natural Gas)
• LPG (Liquified Petroleum Gas)
• Autogas

Importance of fuel prices

Fuel prices are important for many reasons. One of the main reasons is that fuels are a critical input for several industries and sectors of the economy. For instance, transportation across the country requires fuel, and fluctuations in fuel prices can significantly impact the cost of shipping goods and general transport.

It may also impact the production of a wide range of goods as fuel is used by various industrial processes, power plants and agricultural machinery. Apart from that, the fluctuation of fuel prices can also affect consumer behaviour, which can impact the demand for fuel and the overall level of energy consumption.

Lastly, fuel prices can also have an impact on the environment. For instance, burning fossil fuels such as petrol and diesel releases greenhouse gases into the atmosphere, contributing to climate change. Hence, high fuel prices may encourage the development and usage of environment-friendly alternative energy sources.

Here are the crucial factors that influence the prices of fuels in India.

• International oil prices
• Currency exchange rates (Rupee to Dollar)
• Supply and demand
• Taxes (Excise duty, VAT, etc.)
• Dealer commissions
• Government-provided subsidies
• Political instability and conflict
• Natural disasters and weather events

Major events that have impacted fuel prices

Here are some of the major events that have influenced the prices of fuel over the years.

• Oil embargoes in the 1970s (Arab oil embargo and the Iranian Revolution)
• Wars and conflicts in the oil-producing regions of the world
• Economic recessions
• Natural disasters
• Government policies
• Technological advancements

Comparison of fuel prices in different countries

Fuel prices in India tend to be relatively low compared to those in many other countries, especially developed countries.

For example, the average cost of petrol in the United States was $2.91 as of June 2021. If you compare it with India’s average petrol price (Rs. 96.87 or $1.31) as of June 2021, it is more than three times higher. Please note that this example states the average prices and can vary depending on various factors.

However, fuel prices in India are higher when compared to the pricing of some of the developing countries in Asia and Africa.

Factors that influence fuel prices

Here are the factors that impact fuel prices in India.

1. International oil prices

India is a major importer of oil. Any changes in the international price of oil can significantly impact the country's fuel price.

2. Exchange rates

The value of the Indian Rupee against other currencies can also influence the price of fuel in the country. When the Rupee becomes weaker, the cost of importing oil becomes more expensive. Hence, the fuel prices will be higher.

3. Taxes

The fuel price in India is subject to various taxes such as the Central excise duty and Value Added Tax (VAT). Any changes in these taxes can influence the price of fuel.

4. Subsidies

Sometimes, the Government of India provides subsidies for fuel to help keep the prices in check and not burden the consumers. Changes in these subsidies may also impact fuel prices.

5. Supply and demand

Like any other commodity, the price of fuel in India can be influenced by the balance between supply and demand. For instance, if the demand for fuel is high, prices may go up, while an excess supply of fuel may result in lower prices.

6. Refining and distribution costs

Another factor impacting fuel prices is refining and distribution costs. Refining is a process of converting crude oil into finished products, that is, petrol, diesel, etc. Distribution cost is nothing but the expenses involved in transporting the fuel from the refinery to the retailers or fuel pumps.

7. Geopolitical events

Conflicts or natural disasters in oil-producing regions of the world can disrupt the supply of oil. In turn, it can impact fuel prices in India.

Impact of fuel prices on consumers and industries

Fuel prices can significantly impact both consumers and industries in terms of transportation costs and the cost of goods and services. In turn, it may lead to inflation. The following sections throw more light on the same.

1. Cost of transportation for individuals and businesses

For consumers, high fuel prices can lead to increased costs of transportation. As a result, it can decrease the disposable income of consumers, and it may impact their purchasing power and overall standard of living. For businesses, the high transportation costs mean that the cost of goods and services will go up, and in the end, it will also impact the consumers.

2. Effects on the cost of goods and services

The high fuel prices may impact industries in terms of the cost of production and transportation. In turn, it will affect the cost of goods and services. For instance, if fuel prices go up, it will automatically increase the cost of transportation of goods, leading to higher prices for consumers.

3. Impact on industries that rely heavily on fuel

Fuel-intensive industries such as the transport and industrial sectors may also be vulnerable to fluctuations in fuel prices. For example, if the fuel prices are high, the cost of transportation (bus/train/airline tickets) will go up. Similarly, industries that heavily rely on fuel can feel the heat of fuel price hikes.

Types of Fuels

This section will give you an insight into the types of fuels available.

1. Petroleum-based fuels

Petroleum-based fuels include petrol, diesel, and jet fuel. They are the by-products of crude oil and are commonly used to power vehicles and aircraft. They are widely used due to their high energy density and ease of transportation. Read more about Petrol prices and Diesel Prices in India

2. Alternative fuel sources

Alternative fuel sources are those that can be a replacement for traditional fossil fuels. They can potentially reduce the dependency on fossil fuels and decrease the emissions of harmful gases and pollutants. In other words, they can also positively impact the environment. The following points highlight some of the prominent alternative fuels.

• Electrical energy: It can be used to power vehicles that use batteries or fuel cells that can be charged using renewable energy sources.
• Biofuels: These are fuels produced from renewable biological materials, such as plant matter and agricultural waste. Examples of such fuels include biodiesel, ethanol, etc.
• Hydrogen fuel cells: They use hydrogen to produce electricity through an electrochemical reaction. Water is the only byproduct of this reaction.
• Solar energy: It is produced by capturing the energy from the sun and converting it into electricity.
• Wing energy: It is generated by the movement of wind and is used to generate electricity.
• Hydroelectric power: It is produced by harnessing the energy of falling water and is used to generate electricity.

Future outlook for Fuel Prices

Predicting the future outlook for fuel prices is difficult as various factors, including international oil prices, government policies, and economic conditions, can influence it. However, one factor that could heavily impact fuel prices is the increasing energy demand. With the growing population, the need for fossil fuels is likely to increase, which will have a domino effect on fuel prices.

Apart from that, the growing awareness of the environmental impact of fossil fuels can lead to price fluctuations. With Governments and businesses worldwide looking to reduce greenhouse gas emissions and adopting cleaner energy sources, the demand for conventional fuels may reduce. And in turn, it may reduce fuel prices. Overall, it’s a challenging task to make any sort of predictions on the future of fuel pricing as there are multiple factors that can fluctuate the prices considerably.