Consumer pain

The obsession to track anything that changes in value frequently will soon be visible even in fuel prices—at least in five cities to start with. From today, fuel prices will be reset each day in Puducherry, Visakhapatnam, Udaipur, Jamshedpur and Chandigarh. If you track the temperature in your city every day to feel the degree of heat or view stock market prices frequently; you could add fuel price to the list of things to track daily. Currently, oil marketing companies decide on change in fuel prices on a fortnightly basis. The move will help them peg fuel price based on the international oil prices.

From the standpoint of oil marketing companies (OMC), this move will free them completely from any government influence in controlling fuel prices. For instance in the run up to the state elections held in the five states recently, the fuel prices were constant as the government did not want to be seen as one that was allowing fuel price rise. Such influences are the cause of fuel prices being higher or unchanged even when global crude prices fall, because the government tries to play fair in allowing OMCs to maintain prices even when crude prices start to fall.

The move will allow private players like Reliance Industries and Essar Oil, who currently follow the price set by state-owned companies, to also shift to a dynamic model. The move is expected to improve the operational margins of OMCs who will be able to control prices efficiently. OMCs face the challenge of balancing the crude price with foreign exchange rates when arriving at setting the fuel price. With the two main factors that impact fuel prices under its control, OMCs will find the move to their advantage.

Consumer woes

Daily change in price is termed as dynamic fuel, which will be based on daily crude price movements. This will mean, some of us will start checking fuel prices every day before they are set before deciding to refuel or not. This bold step comes after the deregulation of petrol price in 2010 and diesel price in 2014. This was the final barrier for India to follow international standards of fuel pricing. While the government and OMCs have spoken of the move having a limited impact on consumers, the impact of the daily change will be felt in many ways.

First, many small transporters may start hoarding fuel because a frequent price variation will allow them to gain from the arbitrage. Likewise, fuel vendors may also decide to join the party by controlling the fuel they dispense as they could hold on the how much they sell on days when they feel the price is lower or in anticipation of prices to go up the next day. These are all possibilities, which despite assurances by the government are possible.

But the bigger role that daily fuel price change will play is on inflation. The price of essential commodities like food items, cereals, fruits and vegetables will be impacted frequently—even daily. A lot will depend on how the pilot phase pans out in the five cities before the mechanics can be deployed nationwide.

More importantly, the frequent price change could put your conveyance budgets awry. You will need to factor price variations when accounting for expenses on fuel. This will also be visible in the accounting systems of the OMCs, which will be reflected in its finances, leading to change in its daily stock prices. Let’s brace up to face newer challenges, which yet again puts consumer spends on a spot.

nk@outlookindia.com