Govt hikes windfall tax on petroleum crude by 41%; oil and gas stocks under pressure

The Centre has increased the windfall tax levied on petroleum crude to ₹9,600 per metric tonne, up 41% as compared to ₹6,800 presently levied, as per a notification issued by the finance ministry late on Monday, April 15. The new rates will come into effect from Tuesday, April 16.

Following the announcement, the stocks of some of the major crude refiners opened in the red. At 9:22 am, Reliance Industries Ltd (RIL) was 0.32% lower at ₹2,920.40 apiece, and Oil India was down by 0.14% at ₹621.

While the windfall tax on petroleum crude has been raised, no changes have been made for diesel and aviation turbine fuel (ATF). Both will continue to draw a nil windfall tax.

The tax levy on petroleum crude has been consistently raised in the past few fortnightly review meetings. On March 1, the rate stood at ₹4,600 per metric tonne, which was increased to ₹4,900 in mid-March, and subsequently hiked to ₹6,800 on April 4.

Notably, the government began to impose the windfall tax from July 2022 onwards, after refiners drew superprofits due to the export of crude at elevated global prices. The move is aimed at ensuring sufficient supply in the domestic market.

Oil market jittery

The hike in windfall tax on petroleum crude comes at a time when the global oil market is feared to face volatility. The benchmark Brent crude is hovering around the $90 per mark, in the backdrop of the escalating tensions in the Middle East.

The Brent rate had peaked to $92 per barrel last week, in anticipation of Iranian strikes to avenge the alleged Israeli attack on its Damascus consulate. The rates, however, slided by around 1% on Monday, April 15, as Iran’s barrage of missiles fired over the weekend failed to cause any major damage in Israeli territory. Furthermore, Tehran stated that it has avenged the assault on its consulate and does not intend to further escalate the conflict.

While the market participants have scaled down the risk premiums, the fear of a surge in rates still looms, analysts said, pointing towards the possible eruption of a region-wide conflict if Israel retaliates against Iran’s assault.

Meanwhile, the retail fuel rates in the Indian domestic markets have not changed since March 14, when oil marketing companies (OMCs) had reduced the per litre cost of petrol and diesel by ₹2 each.