The prices of LPG saw a sharp hike over the past few months, as international crude oil prices did not seem to cool down during this period. On July 5, state-owned retailers hiked the price of a 14.2 kg domestic LPG cylinder by Rs 50 in Delhi, to make it stand at Rs 1,053 with immediate effect. Meanwhile, after the recent domestic LPG price hike, cylinders in Mumbai are now priced at Rs 1,052.50 and Rs 1,079 in Kolkata. On the other hand, Chennai residents will have to pay Rs 1,068.50 for one cylinder.
Domestic LPG Price Hiked by Rs 219 in Last One Year
The prices of domestic LPG a year ago in July 2021 was Rs 834.50 in Delhi. Following this, the prices were hiked to Rs 859.50 in August that year, and to Rs 884.50 following that in September 2021. On October 6 last year, LPG prices were hiked by Rs 15 to 899.50 in Delhi, and it remained stagnant till March 2022 by Rs 50 when international crude oil prices went past the $100 mark per barrel. Following that, in May, domestic LPG price was hiked twice amid rising crude oil prices and reached Rs 1,003 in the national capital. Thus from July 2021 to July 2022, LPG price was hiked by Rs 218.50 on rising crude oil prices among other factors.
How is LPG Price Calculated?
LPG prices are calculated on the basis of a formula known as import parity price (IPP). India uses the IPP formula as it imports most of its crude oil, while the IPP Saudi Aramco’s LPG price. Therefore, crude oil price is a key factor in determining LPG prices.
The IPP considers various factors including FOB (free on board) price, ocean freight, insurance, custom duties, port dues among others. India converts this price from dollars to rupees, which is why the value of rupee against USD becomes an important factor while calculating LPG price. Moreover, other domestic factors including freight costs, oil company’s margins, bottling costs, marketing expenses, dealer commissions and GST also determine the price of LPG cylinders — both commercial and domestic.
Crude Oil Price Below $100 per Barrel, Will LPG Prices Come Down?
International crude oil prices slid about 2 per cent to a 12-week low in volatile trade on Wednesday as investors grew more worried energy demand would take a hit in a potential global recession, Reuters reported.
Brent crude futures extended declines for a third session on Thursday, slipping under $100 a barrel. Brent crude futures fell 94 cents, or 0.9 per cent, to $99.75 a barrel after tumbling to a session low of $98.50 earlier. WTI crude futures slid 79 cents, or 0.8 per cent, to $97.74 a barrel.
With crude oil prices falling over the past two days, there is a fair chance that oil marketing companies will consider lowering LPG price.
Speaking on crude oil’s impact on LPG prices, Swarnendu Bhushan, senior group VP, oil & gas analyst at Motilal Oswal Financial Services said, “The current Russia-Ukraine geo-political crisis has pushed up oil prices. As a result, LPG prices have also risen in India. Rupee depreciation has added to it. We import 60 per cent of our LPG consumption. As soon as oil prices decline, we would expect LPG prices also to cool off.”
“The trend of spiking LPG prices is directly linked to a couple of crucial factors viz. international prices of petroleum gas and weakening Indian currency against the US Dollar, which has seen record decline lately,” said Suvigya Awasthy, associate partner at PSL Advocates & Solicitors. “The prices of LPG constituents LPG namely, butane and propane have seen a sharp escalation in the international market owing to the ongoing Russia-Ukraine conflict and shortage of supply,” he added.
Anushkaa Arora, principal and founder at ABA Law Office, said that various factors can be attributed to the recent LPG price hike. “Many factors have lead to this surge in LPG prices- it’s just not one single factor- we can attribute this exponential price hike to various factors such as the increase in crude prices, rising inflation and topped with the Russia-Ukraine war,” she said.
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