This is the steepest increase after June 2008 and that may intensify the on going inflation rate. If global oil prices continue to remain high, then another petrol price hike is on the cards soon. The increase in petrol price happened just a day after election results of five states assemblies were announced.
Diesel, LPG and kerosene prices may also go up shortly, finance minister Pranab Mukherjee intimated in Kolkata on Sunday. The finance minister said petroleum prices were increased last time when it was $68 per barrel. But now it is at $110 per barrel.
Reasons for price hike
The demand-supply gap of oil consumption around the world has resulted in sharp increase in oil prices. After surging at a fast pace, the world"s growth slowed down in 2008, and with it the global oil price fell from over $100 per barrel to less than $50 per barrel. But as world economy got back on its feet, the prices of crude oil went up once again. Now they are back around the pre-crisis price of $110 per barrel (approximately).
The political instability in Middle East and North Africa is one of the main root cause of high price rise. Tunisia, Egypt, Libya, Algeria, Bahrain and Iran are few major oil producing countries. If any 2 of the 5 major oil producing Middle East countries had to stop production due to 'political instability', more than 4 million barrels a day of productive capacity would be lost. If Saudi Arabia stops producing oil then the loss would be of 10 million barrels a day. Import prices for India will surge as it buys almost three-quarters of the oil needed for the country from overseas.
Another important reason is losses incurred by government owned refineries. On conditions of anonymity one of the official from the finance ministry stated Saturday's hike in petrol price was necessary because of rise in borrowings by oil companies who suffered severe working capital shortage in view of losses incurred on fuel sales. This price rise in turn could help to reduce the fiscal deficit.
The hike in petrol prices could affect certain sectors especially Automobile Industry because their sales may dampen in the short term so as their stocks. Last but not least, that's the common man who get hit hard of such price rise.