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Diesel, petrol prices soar across states as crude oil surges on good demand

Diesel prices have soared in the country, peaking in Delhi and touching three-year highs in Kolkata and Chennai as crude oil surges on good demand and production cuts led by OPEC and Russia.

On Tuesday, state oil companies sold diesel for a record Rs 59.31per litre in Delhi. Prices in Kolkata and Chennai were Rs 61.97 and Rs 62.48 per litre, respectively, highest since September 2014, according to price information available on the website of Indian Oil Corp. The price in Mumbai was Rs 62.75 a litre, highest since October 3.

Petrol and diesel are not within the ambit of goods and services tax, so their prices vary from state to state according to local levies. After diesel and petrol prices had risen sharply due to hurricanes-induced shutdown of refineries in the United States, the Central government cut excise duties by Rs 2 per litre for petrol and diesel each from October 4.

The current rise in crude oil prices seems to ha
ve erased that gain for consumers in several places in the country. Some states such as Maharashtra and Gujarat, responding to Centre's request to cut local duties, also reduced VAT on petrol and diesel. In these states, price rise has been slower.

On Tuesday, petrol prices in Delhi, Kolkata and Chennai were the highest since November 16. Mumbai prices were the highest since October 10. Petrol was sold for Rs 69.63 a litre in Delhi.

Higher diesel prices mean increased cost for transporters, farmers and all those dependent on diesel-generated power.

State companies daily revise fuel prices which are the average of the trailing 15 days' international rates. Central and state taxes comprise about half of the retail prices of petrol and diesel.

The surge in fuel prices has followed a rapid rise in international crude oil rates which have gained 42% in six months to $65 a barrel at present. Key oil producers, led by oil cartel OPEC and Russia, have recently agreed to extend oil output cuts until the end of 2018 in order to clear a supply glut that caused oil crash in mid-2014 and has since kept the prices lower. The producers have agreed to cut supply by about 1.8 million barrels per day to boost prices.

If the oil continues to boom, it would expand India's import bill, boost inflation and leave little room for the Reserve Bank to cut interest rates. India imports about 82% of its oil requirement. Sustained higher fuel prices may also reignite consumer demand for tax cuts that could upset public finance.

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