Case Study : Petrol

Objectives:IntroductionAnalysis of petrol pricesPrice DeterminantsDemand estimatesElasticity effect on petrolTHE LIQUID GOLD: PETROL

India is now the fourth largest consumer of crude oil & petrol in the world. To fulfill its need, India imports 80% of the crude oil which is further processed into petroleum products.99.6% of petrol is consumed in the transport sector.

Introduction: Petroleum IndustryType % consumptionTwo Wheelers61.42Three wheelers2.34Four Wheelers34.33Brand ( company)Rate (in Rs.)Bharat petroleum62.13Indian oil62.15Shell62.15Hp62.21Price Analysis: when we analyzed the petroleum industry we reached to following conclusions:The price difference among the various brands was minute. The number of buyers were huge i.e. almost 80% of total populationThe number of sellers were few.

IT IS OLIGOPOLY MARKET

Price Determinants:Cost of Crude oilTax burdenIncreased demandMismatch of supply and demandDealers commission

As India imports 80% of its crude oil, therefore the prices of petrol heavily depend on international crude price.The crude price depends on demand and supply of crude in the whole world. Tax Burden:A number of taxes are levied in India on petrol such as: Tax Type Amount or PercentageExcise Duty14.35 rs/litreCustom Duty2.5 % per litreSales Vat 15-23 % per litreFor eg: In Surat, price of petrol is Rs62 & Vat is 23%, therefore taxes contribute almost 50% to the price we pay.Till 2025, the petrol demand in the nation is expected to increase by 165% as per the future growth scenarios.

Demand :

Supply:To meet its requirements India imports 80% of the total demand from countries like Iran, Iraq, Saudi Arabia, and Syria, etc.

Whereas In India the major petroleum refineries are as follows:

Name of Refinery Refining capacity(in million tonnes)Indian oil corporation - Baurauni 3.50Bharat Petroleum corp.- Bombay 5.25Assam Oil Company- Digboi 0.50Vishkhapatnam 1.50Cochin Refineries- cochin 3.30Jamnagar Refinery (RIL) 33.0Guru Gobind singh Refinery- Bhatinda 9.0Price Elasticity: Demand for petrol is quite inelastic. For E.g.: If you have a car, there are not many alternatives to buying petrol. This is why the increased price of petrol has failed to reduce demand for petrol significantly. (there is an estimated PED of petrol of -0.1 in the short term)

Income Elasticity: When the income if individual increases, the individual tend to buy more vehicles as a result the demand for the petrol increases indirectly.

Hence we can say Income elasticity is positive for petrol. Elasticity:

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