Indian Oil Companies Pricing of Petroleum Products

Oil Cos.import the raw material,Crude Oil which is refined in the refineries in the country to produce various fuels -

• Petrol
•  Diesel 
• Cooking Gas
•  Aviation Turbine Fuel
•  Furnace Oil and 
• Kerosene 

It is to be noted that the price one pays for a litre of petrol has no relation to the cost incurred to produce the same because Oil Cos. follow the concept of "under-recovery"which is the difference between the price Oil Cos.charge and the price at which fuel products are supplied for sale to consumers,excluding taxes.

 

In a refinery,Crude Oil is processed through a series of primary and secondary processing units.The complexity of the refining process results in conversion of a si Single input to multiple finished products with varied market value and chemical properties.Thus,the allocation of the joint costs of raw material and processing costs to individual petroleum products at refinery accurately is not possible.

Oil Cos.thus base their pricing decisions for the petroleum products om prices that prevail in markets abroad.For instance,for petrol,the base for comparison is the Singapore Oil market price while for Diesel and Aviation Fuel,it is based on Arab Gulf Traded Prices.