For two consecutive months, firms depending on commercial LPG got some respite. This trend has ended now.
Tuesday witnessed an increase of 5.46 per cent in the cost of aviation turbine fuel (ATF). Also, the price of commercial LPG for business entities like hotels and restaurants was increased by ₹9.50 per 19-kg cylinder according to its rise in their global benchmark prices.
These changes took place from September 1, through monthly review of petroleum product prices based on changing global benchmarks, carried out by state-owned oil marketing companies.
Jet fuel bore by far the biggest brunt in terms of percentage figures.
The price of Jet fuel, or ATF, is now being increased by ₹6.28 per litre, or 5.46%, to ₹121.28 per litre for domestic airlines from the existing rate of ₹115 per litre, which means two successive months of price increases for jet fuel.
The commercial LPG cylinders, on the other hand, witnessed a much lower hike. The 19-kg cylinder used in hotels, restaurants, and catering business establishments is being increased by ₹9.50, and the 5-kg commercial cylinder is being increased by ₹2 to ₹764 from ₹762, that is, 0.26%.
Jet fuel bore by far the biggest brunt in terms of percentage figures.
The price of Jet fuel, or ATF, is now being increased by ₹6.28 per litre, or 5.46%, to ₹121.28 per litre for domestic airlines from the existing rate of ₹115 per litre, which means two successive months of price increases for jet fuel.
The commercial LPG cylinders, on the other hand, witnessed a much lower hike. The 19-kg cylinder used in hotels, restaurants, and catering business establishments is being increased by ₹9.50, and the 5-kg commercial cylinder is being increased by ₹2 to ₹764 from ₹762, that is, 0.26%.
The price of jet fuel too has seen a similar trend in recent months of cutting and increasing.
Prices of ATF had been increased by Rs 5 per liter just before this week following a reduction of Rs 5 per liter in July – which implies that Tuesday’s 5.46% hike is part of a monthly trend that has made the biggest cost for airlines unpredictable in the year.
These price changes were not restricted to commercial use of LPG and jet fuel; price changes took place in the field of city gas distribution as well, and the reason was stated clearly.
CNG prices have been hiked by ₹2 per kg to ₹88 in Mumbai, and domestic PNG prices have risen by ₹1 per standard cubic meter (SCM), the new prices effective from September 1.
Mahanagar Gas Limited, however, was very clear about the reason behind this hike: "Taking into consideration the current situation in the Middle East region, which is causing a significant rise in the cost of input gas prices as per international indices, MGL announces price revision of CNG."
The recent rise in LPG prices comes hot on the heels of another decision made by the government regarding the production of cooking gas by Indian refineries.
The increase in LPG prices has come in the wake of the government's decision to fix maximum production of cooking gas by individual public and private sector refineries and upstream companies.
The Ministry of Petroleum & Natural Gas has earlier decided on the maximum amount of LPG production from 21 refineries and upstream companies, which can produce up to 63,810 tonnes of LPG per day.
While the government may not have made any direct connection between the two decisions, the almost simultaneous nature of the two events could raise questions on whether the restriction in domestic production is behind the increase in LPG prices along with international benchmark prices.
Importantly, the current round of prices changes did not involve any change in the LPG cylinders used in the homes of Indians; only the commercial LPG cylinders which are used by businesses got changed.
The political aspect is just as important here as the economic one: home use of LPG is a more sensitive issue in India because it directly affects the family budget, while increases in the price of commercial LPG are usually paid for by the business sector itself.
The hike is not isolated; it’s the newest manifestation of the same crisis in the Strait of Hormuz that has been causing rises in crude prices, rupee devaluation, and the cost of importing liquefied natural gas in India for several months already.
Given that the international crude oil benchmark Brent rose to close to $90 per barrel due to the confrontation between the US and Iran over the Strait of Hormuz, and with international gas and jet fuel benchmarks moving along with oil prices, the recent fuel price hikes are driven by the same geopolitics affecting the cost of energy imports into India in virtually every aspect this year.
The impact of the Tuesday price hikes would fall upon two separate entities.
Where the hospitality industry is concerned, the hike by ₹9.50 for each 19 kg cylinder represents another addition to the already existing list of cost increases, which makes budgeting extremely difficult for smaller and medium-sized hotels, restaurants, and catering firms who are unable to pass these cost increases to their customers without impacting their sales.
Where the airline industry is concerned, the impact of such price hikes is much more significant due to the fact that the cost of jet fuel is essential for the operation of an airline.
The average cost of jet fuel constitutes a significant portion of the operational costs of any airline, which makes a single month increase of 5.46% highly significant – all the more when taking into account the 67% market share of IndiGo.
However, it should be noted that the pricing structure of commercial LPG and ATF in India is well known. This is because state oil marketing firms make changes in the pricing of LPG and ATF almost monthly—in the beginning of the month.
The change is determined by fluctuations of international benchmark prices—the Saudi Contract Price for LPG and the jet fuel index for ATF, which fluctuates significantly depending on global energy market trends and politics.
Therefore, one may assume that Tuesday's increase would not be the last one, especially in light of the ongoing crisis at Hormuz and general volatility of the international energy markets.
