Do you know what determines the Oil Prices?

What determines the price of petrol diesel?

There is no exaggeration in the fact that petrol and diesel prices affect each and every citizen in some or other way whether directly or indirectly. The importance of these two things is such that whenever there is any change, it is being discussed in the entire society. From the time of deregulation, the changes in the rates of crude oil or the variations in tax rates directly affect the price of the petrol as well as diesel.

While most of us follow the prices of both of these commodities, but we are not properly aware of the pricing structure and the components that decides the actual last price of diesel and petrol. Let’s look in details about what factors determine the price of petrol diesel.

The retail selling price of petrol

Based on a lot of the factors, the retail selling price, commonly known as RSP of the petrol is being determined. Every fortnight, the average pricing of the crude oil is calculated for the Indian basket. Per barrel of crude oil, the price is being calculated in dollars. According to the average exchange price for that particular fortnight, the value is calculated in the term of Indian rupees.

Crude oil subject to petrol

The crude oil is first transported to a refinery where it is refined in order to extract the petrol. Then, to the charges of raw crude oil are added the extra price of refining along with the freight charges. This price is then termed as refinery transfer price better called as RTP. This price is paid by the oil marketing companies, for example, HPCL, IOCL, and BPCL etc. Then, OMCs further add some cost to it and sell the petrol to the owner of the particular petrol pump.

Various taxes add up

There are basically two taxes i.e. the central excise duty which is being levied by the central government and the state tax called as VAT (Value added tax). The price that is charged to the dealers i.e. the petrol pump owners comes up adding these tow taxes. The central excise duty being imposed is fixed by the central government whereas the VAT keeps on changing according to the states. Once the central tax is being imposed, the dealer adds his own commission to the petrol price.            

These prices add up together to give the final price of the petrol called as the final retail selling price (RSP) and further reaches to the customer. Because of the VAT rates, the price keeps on differing according to the different states. Also, according to the change in OMCs, these prices can differ to some extent due to variations in the dealer’s commission and the margins added by the OMCs.

This is the entire process of the price of petrol as well as diesael and it keeps on changing with variations in taxes.

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