Kathmandu, June 26: Global crude oil prices have fallen below US$70 per barrel, down more than 40 per cent from the peak of around US$119 reached during the recent US-Iran conflict. Prices have now returned to almost the same level as before the war. Yet consumers around the world, including in Nepal, are still paying high prices for petrol and diesel.
The reason is simple: crude oil and refined fuels are priced differently. While crude has become cheaper, the cost of refining, transportation, supply constraints and strong demand have kept petrol and diesel prices elevated.
Petrol currently sells at about US$182 per barrel in India, US$199 in China and US$179 in the United States. In Nepal, petrol costs Rs 217 per litre. Diesel prices remain even higher, averaging US$164 per barrel in India, US$178 in China and US$202 in the US, while Nepali consumers pay Rs 222 per litre. Although diesel prices have eased slightly from their postwar peak, they remain historically high.
Petroleum expert Sushil Bhattarai says the gap between crude and refined fuel prices stems from the structure of the global oil market. Crude oil is only a raw material and cannot be used directly in vehicles. It must first be processed in refineries, an expensive and complex operation that depends on refinery capacity, energy costs and market demand.
According to Bhattarai, refined fuel prices are determined largely by supply and demand rather than crude oil prices alone. Even if crude becomes cheaper, fuel prices will not fall significantly unless global inventories of petrol and diesel also increase. Countries with large storage facilities must first build sufficient stock before refiners reduce prices.
Transportation is another major factor. Crude oil and refined fuels require different types of tankers. Ships carrying petrol and diesel, known as clean vessels, must meet much stricter quality and safety standards to prevent contamination between fuel grades. These additional handling and cleaning requirements make transporting refined fuel much more expensive than shipping crude oil.
“As long as refining and transport costs remain high, consumers should not expect an immediate drop in fuel prices simply because crude oil has become cheaper,” Bhattarai said.
Another major shift has been the sharp rise in diesel prices. Historically, petrol was more expensive than diesel. That pattern changed after the Russia-Ukraine war disrupted Europe’s natural gas supply. As Russian gas exports declined, European industries, power producers and heating systems turned to diesel as an alternative fuel, driving global demand sharply higher.
At the same time, damage to refinery units specialising in diesel production reduced global supply. High industrial demand combined with lower production pushed diesel prices above petrol. Bhattarai says diesel prices are unlikely to decline significantly until gas supplies stabilise and industrial demand weakens.
War-related damage to refineries has also affected fuel markets. Although crude oil production has recovered, some refineries in the Gulf region may still not be operating at full capacity. Oil-producing countries rarely disclose the full extent of damage because petroleum infrastructure is considered strategically sensitive.
Nepal faces an additional delay before any global price decline reaches consumers. The Nepal Oil Corporation (NOC) receives revised fuel prices from the Indian Oil Corporation every 15 days. As a result, changes in international markets usually take at least two weeks to appear in Nepal.
Even then, lower import costs do not automatically translate into lower retail prices. NOC may choose to retain higher prices to recover past financial losses. During previous periods of soaring oil prices, the corporation spent more than Rs 30 billion from its price stabilisation fund and continues to manage outstanding liabilities.
Although India has reduced fuel prices twice recently, NOC has not passed those reductions on to consumers. While this has strengthened the corporation’s finances, it has also kept transport and household fuel costs high.
Bhattarai argues that the government should provide relief as soon as possible. Since diesel powers freight transport and construction equipment, expensive diesel quickly pushes up transportation costs, which in turn raises the prices of food and other essential goods. Lowering fuel prices, he says, would help ease inflation across the broader economy.
People’s News Monitoring Service
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