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Why petrol, diesel prices are not falling despite crude oil prices crashing below zero | EXPLAINED

Crude oil prices in the international market fell below zero for the first time ever, but still, petrol and diesel prices in India are hovering near Rs 70 per litre and Rs 62 per litre, not falling at all in line. What is it that is holding up retail fuel prices? Is the government not allowing the benefits to pass on to the consumers? Here, it is important to understand that the retail prices of fuel do not depend only on the crude oil prices. In the build-up of petrol price in India, the base price, which is governed by the crude oil price, plays only a 40 per cent role in determining the overall price of petrol. Here are a few key reasons why petrol and diesel in India are still costly despite the recent crash in crude oil prices.

First of all, crude oil prices REALLY DID NOT fall below zero for India

The category of crude oil for which the price fell below zero was WTI, which is traded in the US. Moreover, the price fell below zero only for the May delivery contracts, which were due for immediate expiry on Tuesday. The July WTI delivery contracts were at the time still trading at above $20 per barrel. Further, the Indian basket of oil is dominated by another benchmark, the Brent crude oil prices, which were still ruling even higher. Today, the Brent is trading at $16.54 a barrel in Asia, freely falling from $24 per barrel on Tuesday. In a petrol price of Rs 69.59 per litre, the base price is only Rs 27.96 and the rest are the domestic charges including taxes and duties, according to data from Indian Oil Corp.

Government is keeping the benefit for itself, and making up for tax shortfall

“The fall in crude oil prices has not transmitted into the retail prices of petrol and diesel. However, the plunge in consumption of various fuels, especially during the lockdown period, would have an adverse impact on the state governments’ revenues,” Aditi Nayar, Principal Economist, ICRA, told Financial Express Online. To take advantage of the cheap raw material, the government is also trying to collect more taxes from fuel, which can be used to offset other losses.

Excise duty on petrol and diesel was hiked by Rs 3 per litre last month and the special excise duty on petrol was hiked by Rs 2 to Rs 8 per litre in case of petrol and to Rs 4 in case of diesel. Additionally, road cess was also raised by Rs 1 per litre each on petrol and diesel to Rs 10. Though the government is trying to make the most out of the rising crude prices, it is not expected to make a significant difference to the financials.

The subsidy extended by the Government of India on petroleum products, budgeted at Rs 41,000 crore for the current financial year 2020-21, forms the smallest component of major subsidies, hence, any savings on this front will pale in comparison to the expected loss of tax revenues during the lockdown period, Aditi Nayar added.

Oil companies are using low crude oil prices to cut losses

Strict lockdown across the country has restricted the movement of vehicles, causing a severe slump in fuel demand. This has also caused tremendous loss to the oil marketing companies (OMCs). In order to take care of those losses, the oil companies are not allowing the benefits to pass on to the retailers, and are instead using low crude oil prices to offset their own losses. Even apart from these reasons, there are multiple factors including USD-INR exchange rate, etc that play an equally important role in determining the overall retail prices of petrol and diesel.

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Aiming for great returns in a volatile share market? This simple trick could do the task

Portfolio diversification is one of the most well-known subjects in the field of trading. However, it is also one of the most neglected ones, especially by new investors. Seasoned investors, nevertheless, keep their portfolios well balanced. They do it to a point that they even diversify their same asset investment across different markets around the world. Doing so minimizes associated risks while simultaneously improving the overall returns. So, if you are new to investing, here is why you should diversify your portfolio.

Why should you diversify your portfolio?

Well, to be concise, neither the market nor its different sectors react in the same way as the other. So, while you might be observing growth in a particular segment or the market at large, there might be some sector bucking the trend. An inverse scenario can also be true. For instance, consider the current market situation. The stock markets have observed a virtual bloodbath and lost around one-fourth of their respective positions in the last two months. The Pharma and Healthcare sectors, on the other hand, have registered a growth of a similar nature in the due course. The same somewhat holds true for the FMCG sector. So, as a wise investor, you must diversify your portfolio to minimize the losses when there is market headwind. It will also amplify your returns when the tide is in the favor.

How should you invest?

To begin with, establish a firm understanding in your mind that portfolio building is not a rocket science. However, it needs you to be aware about the applicable factors. The market is fairly simple to understand with different industries, verticals, and other relevant dynamics such as the regulatory framework, company’s management (including key shareholders), supply-demand dynamics, etc. working in conjunction with each other like clockwork. The more detailed your understanding is, the more accurate your assessment is going to be.

How should you diversify?

Your diversification completely depends on your personal investment strategy. Diversification can be done in terms of sectors, market capitalization (large-cap/mid-cap/small-cap), or the investment instrument altogether. A well-diversified portfolio is the one that has a good mix of securities (belonging to different sectors and company sizes), commodities (including bullion and base metals), and currencies. It also incorporates the respective regulatory outlook and different market scenarios. For instance, the coronavirus lockdown in India is now supposed to end on 3rd of May, 2020. However, as a good investor, you must always consider the alternate scenario and balance it out in your portfolio.

Establish targets and stop losses

Now, this might come as a no-brainer but do remember to establish respective targets and stop losses. It includes setting relevant parameters for your currency investments, if any. Also, maintain an extraordinary discipline with your targets and do not give in to emotional calls. This will help you go a long way with your investments.

Ultimately, diversification is completely your call to take based on your unique investment pattern, preferences, and risk appetite. Remember to never collect assets in a single sector or instrument since it exponentially increases your risk accumulation. Being an investor, the more insights you can gather around the market and your key stocks or assets, the better. Knowledge and insights are the true game-changers in the market, after all!

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Gold prices fall over Rs 1,200 per 10 grams in less than a week as yellow metal sees profit booking

Gold prices eased Rs 1,220 per 10 grams from its record high level hit last week on the signs of the containment of coronavirus spread which damped the demand for the safe-haven asset, says Jigar Trivedi, Fundamental Research Analyst – Commodities, Anand Rathi Shares and Stock Brokers. Gold June futures were down 0.40 per cent or Rs 183 to Rs 45,552 per 10 grams. Silver May futures were trading flat at Rs 42,807 per kg on Multi Commodity Exchange (MCX). “The cases and fatalities slowed in New York, possibly the high point is a matter of the past. Moreover, the UK, Spain and Italy also reported fewer cases. Hence, sentiment for yellow metal may stay weak today,” Jigar Trivedi added.

Globally, gold prices fell to a more than one-week low on Monday, as US President Donald Trump planned to reopen the world’s largest economy battered by the coronavirus. Spot gold fell 0.3% to $1,679.95 per ounce. US gold futures slipped 0.2% to $1,695.20. Palladium rose 2.3% to $2,206.12 per ounce, platinum was steady at $775.41 and silver gained 0.6% to $15.22, according to a Reuters report. The fall in gold prices came on the back of “optimism that major economies may give some relaxation from lockdown and industrial activities may resume. The safe-haven demand may fade for the yellow metal. For an intraday perspective, we expect gold and silver may trade on a negative note,” Anuj Gupta, Deputy VP- Commodities & Currencies Research, Angel Broking Ltd, said. “Gold has a strong support at 45200 – 45100 levels and resistance at 45800 to 45900 levels. Silver has support at 42500 – 42300 levels and resistance at 43400 – 43500 levels,” Anuj Gupta said.

Fears of a global recession and hopes of more quantitative easing programs from central banks continue to support the yellow metal’s short term positive outlook, says Hareesh V, Head Commodity Research at Geojit Financial Services. He also suggested that a strong dollar and optimism over top economies to restart activities after the lockdown may hit the demand for the commodity. “As long as the prices hold the support of $1640 expect recovery upticks to continue through the day,” Hareesh V said.

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