CRUDE OIL PRICE AND RETAIL SELLING PRICE OF PETROL & DIESEL IN DELHI- AN EMPIRICAL STUDY

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1 CRUDE OIL PRICE AND RETAIL SELLING PRICE OF PETROL & DIESEL IN DELHI- AN EMPIRICAL STUDY Mr. Bhavesh Kumar Rathod, Department of Commerce & Management, Padmashree Institute of Management & Sciences, Bengaluru, India, id: Dr. Gajendra Naidu, Department of Management, Bharathiar University, Coimbatore, India, id: Dr. V Asha, Department of Commerce, Bharathiar University, Coimbatore, India, id: drvashagn@gmail.com Abstract India imports around 7 percent of its crude oil requirement from OPEC nation like Iran, Kuwait, Nigeria, Eurasia, Euro-Africa and Saudi Arabia to promote trade, build good relationship and because of larger number of India living and working in those nations. In India the demand for crude oil is increasing day by day on an average of eight percent annually. As we have noticed in last few years the changes in crude piece has less impact on petrol and diesel price. This study is carried out to know the percentage of change in crude oil price that with petrol and diesel price in Delhi. This study may be helpful to the researchers, govt. agencies and other stake holders to deal with petrol and diesel price. Regression, correlation and trend analysis has been used to analyze the objectives and will help the study to disclose the results in an effective way. Keywords: Price, correlation, regression INTRODUCTION Oil is one of the vital natural resource in the world. As the demand is increasing day by day and the availability of oil resource is decreasing day by day, countries are struggling to extract it at almost any cost. Oil is a vital input for the production of a wide range of goods and services, because it is used for transportation in business of all types. Higher oil prices thus increase the cost of inputs; & final product price increases causes inflation, if the cost increases cannot be passed on to end users, economic inputs such as labor and capital stock may be reallocated. In a net importer of oil economy like India, higher oil prices shrink foreign reserves of the economy, affect the purchasing power of the economy in terms of P a g e

2 International trade. The word petroleum is derived from two Latin words petra means rock and oleum means oil. Petroleum is loosely called rock oil or crude oil. It is a generic term covering a wide range of substances comprising hydrocarbons, which are naturally occurring molecules of carbon and hydrogen. LITERATURE REVIEW A Aparna (4) In this paper, an attempt has been made to study the impact of crude oil price on the Indian economy by considering Gross Domestic Product (GDP), Index of Industrial Production (IIP) and Wholesale Price Index (WPI) as the relevant variables. Vishal Sood, Dr. Ira Bapna, Dr. N. K. Totala, Prof. H.S. Saluja (4) The study unfolds the relationship among crude oil, S&P CNX Nifty and S&P CNX Nifty companies' futures. It concludes that crude oil and S&P CNX Nifty is significantly correlated. It is also conferred that there exist unit root among crude oil, S&P CNX Nifty and S&P CNX Nifty companies' futures. OBJECTIVES OF THE STUDY The objective of the study is as follows. METHODOLOGY. To examine the relationship between Crude Oil Price and Sales Price of Petrol and Diesel at Delhi.. To forecast the Crude Oil Price and Sales Price of Petrol and Diesel. To find out the trend of Crude Oil Price and Sales Price of Petrol and Diesel The secondary data has been collected from Petroleum Planning and Analysis Cell website which is maintained by Ministry of Petroleum and Natural Gas, Govt. of India, for this study crude oil price and Retail Selling price of Petrol and Diesel has been collected from till 7 Hypothesis The hypothesis to be tested is derived from the notion that Crude Oil Price influences the Retail Sales Price of Petrol and Diesel. Therefore the following hypotheses have been framed. H There is no significance relation between Crude Oil Price and Retail Price of Petrol in Delhi H There is no significance relation between Crude Oil Price and Retail Price of Diesel in Delhi P a g e

3 Tools used for analysis In order to fulfill the objectives the statistical tools such as correlation, regression, trend analysis have been used. ANALYSIS Table Relationship between crude oil price and petrol & diesel price at Delhi- Correlation Years Crude Oil Price* Indian Basket Retail Petrol Price* In Delhi Retail Diesel Price* in Delhi Note : *-On an Average in INR Source : P a g e

4 Figure. Relationship between crude oil price and petrol & diesel price at Delhi- Correlation Crude Oil Price Vs Retail Petrol Price - Delhi Crude Oil Price* Indian Basket Retail Petrol Price* In Delhi Figure. Relationship between crude oil price and petrol & diesel price at Delhi- Correlation Crude Oil Price Vs Retail Diesel Price - Delhi Crude Oil Price* Indian Basket Retail Diesel Price* in Delhi In Figure we can see that their exist a moderate positive relationship exist in between crude oil prices and Retail Petrol which is +.7(Karl Pearson Coefficient of Correlation). And in Figure. shows that their exist a moderate positive relationship exist in 4 P a g e

5 between the crude prices and Retail diesel price is +.(Karl Pearson Coefficient of Correlation) which is low compared to crude oil and retail petrol price. Table. Forecasted crude oil price, petrol & diesel price at Delhi- regression analysis Crude Oil Price * Retail Petrol Retail Diesel Price* Years (Indian Basket) Price* In Delhi in Delhi Note : *-On an Average in INR Source : P a g e

6 Figure Forecasted crude oil price, petrol & diesel price at Delhi using regression analysis Forecasted value of Crude OIl price, Retail Petrol Price & Retail Diesel Price Crude Oil Price * (Indian Basket) Retail Diesel Price* in Delhi Retail Petrol Price* In Delhi Figure shows that there is a upward trend in the prices of Crude oil, Petrol and Diesel price. The time comes somewhere between and where crude oil price and the Retail Petrol Price will be same. Figure.4 Trend analysis of Crude Oil price Trend Analysis of Crude Oil Price Crude Oil Price* Indian Basket Trend Value Figure. Trend analysis of retail petrol price. P a g e

7 Trend Analysis of Retail Petrol Price Retail Petrol Price* In Delhi trend value Figure. Trend analysis of diesel price Trend Analysis of Retail Diesel Price Retail Diesel Price* in Delhi trend Value Interpretation: Figure 4 shows that there was an upward trend till and there was a sudden fall in the crude oil price in, till there was an upward trend but there after price of the crude oil gradually fallen down i.e. there was a downward trend seen from.where as retail petrol & Diesel price is concerned we can see mixed trend but from onwards there is upward trend is noticed. Hypothetical Testing H There is no significance relation between Crude Oil Price and Retail Price of Petrol in Delhi 7 P a g e

8 z-test: Two Sample for Means Table. Z-Test analysis of Crude oil price and Retail Petrol Price Crude oil Price Retail Petrol Price Mean.44.4 Known Variance 7.7. Observations Hypothesized Mean Difference Z.77 P(Z<=z) one-tail.47 z Critical one-tail.447 P(Z<=z) two-tail.7444 z Critical two-tail. Source : Excel Table. at % LOS with two tailed test, the calculated Z values is.7 which falls in acceptance region, therefore H is accepted i.e. there is no significance relation between Crude Oil Price and Retail Price of Petrol H There is no significance relation between Crude Oil Price and Retail Price of Diesel in Delhi P a g e

9 z-test: Two Sample for Means Table 4 Z-Test analysis of Crude oil price and Retail Diesel Price Crude oil Price Retail Diesel Price Mean Known Variance Observations Hypothesized Mean Difference Z.4 P(Z<=z) one-tail. z Critical one-tail.447 P(Z<=z) two-tail.777 z Critical two-tail. Source : Excel Table.4 at % LOS with two tailed test, the calculated Z values is. which falls in rejected region, therefore H is rejected i.e. there exist a significance relation between Crude Oil Price and Retail Price of Diesel CONCLUSION This article has helped me a lot in understanding the relationship between crude oil price and retail petrol & diesel price in Delhi, in this research we found there is a moderate relationship between crude oil price and retail petrol & diesel price in Delhi, around 7% of the petrol and diesel price in Delhi depends on crude oil whereas around % of the petrol and diesel price depends on other factors like ocean freights, central exercise duty, demand and supply etc. P a g e

10 REFERENCES PricesPetroleum.aspx Note-Impact-Oil-Price-Indian-Economy.pdf P a g e

11 P a g e APPENDIX (IF ANY..) Petroleum Planning & Analysis Cell Crude Oil Price (Indian Basket) Table Posted: (4-- 7) Period : Since - ($/bb l.) Yea r Ap ril Ma y Jun e Jul y Aug ust #### ### Octo ber #### ### #### ### Jan uary #### ### Ma rch Ave rage Ratio * : : : : : : : : : : : : : : : : :.7 Not

12 es: * The composition of Indian Basket of Crude represents Average of Oman & Dubai for sour grades and Brent (Dated) for sweet grade in the ratio of crude processed during previous financial year, e.g. ratio of crude processed as indicated in the table above. - Crude oil prices are average of daily prices of respective month. Petroleum Planning & Analysis Cell P a g e Revision in Retail Selling Prices of Petrol and Diesel at Delhi Table Posted: (.4.7) Period : April - June 7 Date of Revision Petrol* Diesel* - (Rs./Litre) (Rs./Litre) As on As on

13 4- As on As on (VAT Implemented at Delhi) (VAT rate on diesel reduced to.%) As on (Reduction in VAT Rate) As on As on As on As on P a g e

14 - As on As on As on P a g e

15 As on As on P a g e

16 -7 As on As on *RSP of Petrol/Diesel is for IOC. P a g e