Government has on Friday increased the windfall tax on petroleum crude to Rs 10,000 per tonne from Rs 6,700 per tonne with global crude prices being on the rise lately. The increase will come into effect from September 16.
The government has cut Special Additional Excise Duty (SAED) on aviation turbine fuel to Rs 3.5 per litre from Rs 4 per litre. Also, the windfall tax on diesel has been reduced to Rs 5.5 per litre from Rs 6 per litre with effect from September 16, Business Today reported. On September 1, the government had cut windfall tax on petroleum crude to Rs 6,700 per tonne from Rs 7,100 per tonne.
India imposed the windfall tax on crude oil producers in July last year and extended the levy on exports of gasoline, diesel and aviation fuel after private refiners wanted to make gains from robust refining margins in overseas markets, instead of selling at home.
The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.
A windfall tax is levied on domestic crude oil if rates of the global benchmark rise above $75 per barrel. Export of diesel, ATF and petrol attract the levy if product cracks (or margins) rise above $20 per barrel.
Product cracks or margins are the difference between crude oil (raw material) and finished petroleum products.
Oil prices hit a 10-month high on Friday and were set to post a third weekly gain as supply tightness spearheaded by Saudi Arabian production cuts combined with optimism around Chinese demand to lift crude.
US West Texas Intermediate futures rose 0.7% to $90.78 a barrel and Brent crude futures rose 0.2% to $93.91 a barrel. Both benchmarks hit their highest since November 2022 earlier in the session, and are up about 4% for the week.
Oil prices are also on track for their biggest quarterly increase since Russia’s invasion of Ukraine in the first quarter of 2022.
Supply concerns continue to be a driving force for prices since Saudi Arabia and Russia this month announced an extension of their combined 1.3 million barrel per day supply cuts to the end of this year, said Fiona Cincotta, analyst at City Index.
Better-than-expected industrial output and retail sales data from China have also given a boost to oil prices this week, with the country’s economic conditions considered crucial to oil demand for the rest of this year, Cincotta added.
Data on Friday showed Chinese oil refinery processing rose by nearly a fifth from a year earlier as processors kept run rates high to capitalise on high global demand for oil products.
Expectations of moderating U.S. oil output have also boosted prices in recent weeks, Third Bridge analyst Peter McNally said.
“Supply growth from the U.S. appears to be limited as producers there have taken drilling activity down nearly 20% from last year’s peak,” McNally noted.