What Did Saudi Arabia Do?
State-owned oil giant Saudi Aramco unexpectedly cut its official selling price (OSP) for its flagship Arab Light crude for Asian customers in November. The price was lowered by $3 per barrel, a surprising move as analysts had predicted a hike. This decision
is seen as a strategy to protect its market share in its most important market, especially as soaring shipping costs through key routes have made deliveries more expensive for buyers. While a $3 per barrel discount is welcome, it only covers a fraction of the recent surge in freight charges. However, it signals a competitive move from the world's largest oil exporter to keep its Asian customers happy.
The Price at the Pump is Not Just Crude
For Indian consumers, the global price of crude oil is just the first step in a long and complex calculation. Before petrol or diesel reaches your vehicle's tank, several other costs are layered on top. The price you pay is a combination of the base price of the fuel, central government taxes, state government taxes, and the commission paid to the petrol pump dealer. This multi-layered structure is why a dip in one component—even a significant one like the cost of crude—doesn't always lead to a proportional drop in the final retail price.
India's 'Broader' Crude Basket
India doesn't just buy crude oil from Saudi Arabia. The price Indian refineries pay is based on the 'Indian Basket' of crude oil. This is a weighted average of different types of crude oil that India imports, primarily a mix of sour grades (like Dubai/Oman) and sweet grades (like Brent). As of early October 2026, the Indian Basket was priced at over $120 per barrel. This diversification helps spread risk, but it also means that a price cut from a single supplier, even a major one like Saudi Arabia, is averaged out across the entire portfolio. Therefore, the impact on the base price of fuel in India is diluted.
The Biggest Factor: Taxes
The most significant portion of India's retail fuel price has little to do with global oil markets. It comes from domestic taxes. Both the central government and state governments levy heavy taxes on petrol and diesel. The central government imposes a fixed excise duty, which includes components like the Basic Excise Duty, Special Additional Excise Duty, and various cesses for infrastructure and development. This rate is the same across the country. On top of that, each state levies its own Value Added Tax (VAT), which is a percentage of the total price (including the base price and central excise duty). Because VAT is a percentage, state revenues automatically increase when the base price of fuel rises, a concept known as ad valorem taxation.
The Role of Oil Marketing Companies
India's fuel prices have been deregulated, which means state-run Oil Marketing Companies (OMCs) like Indian Oil, BPCL, and HPCL are technically free to set prices daily based on international rates and the USD-INR exchange rate. However, there are often periods where these companies absorb rising costs to protect consumers from price shocks, leading to 'under-recoveries' or losses. Conversely, when global prices fall, OMCs may use the opportunity to recover past losses or build a buffer rather than passing on the full benefit to consumers. The government has, at times, adjusted excise duties to help OMCs manage these under-recoveries without changing the pump price.
