Domestic consumers may be in for a hefty increase in petrol and diesel prices if the government allows public sector oil marketing companies to align their retail prices with the import parity prices of the two fuels.
The increase can well be Rs 2.40 a litre in the case of petrol and Rs 1.80 a litre for diesel.
These estimates are based on the fact that the last price revision of these fuels was made on the basis of a barrel of the Indian basket of crude costing $24. The figure has now climbed to $28.
The composition of the Indian basket represents free-on-board prices of the average of Oman/Dubai crude for sour grade and Brent for sweet grade in the ratio of 58:42.
According to the petroleum ministry's calculations, every $1 increase in the price of a barrel of the Indian basket of crude results in the domestic price of petrol moving up by 60 paise a litre and that of diesel by 45 paise a litre.
Therefore, a $4 a barrel increase in the price of the Indian basket of crude should result in the price of petrol going up by Rs 2.40 a litre and that of diesel by Rs 1.80 a litre.
However, industry sources point out that it is unlikely that the government will allow the industry to align domestic prices completely with international prices. It would increase domestic prices in "easy instalments" or wait for the international market to cool.
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