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Despite crude oil at $65 a barrel, petrol and diesel prices near Rs 100 per litre due to heavy taxes by the government
Contrary to popular belief, refining crude oil is neither prohibitively expensive nor inefficient.
Every visit to a fuel pumps raises a familiar question for all motorists, that why are petrol and diesel prices so high despite relatively moderate global crude oil rates? With crude oil trading at around $65 a barrel, many consumers assume retail fuel prices should be significantly lower. However, a closer look at the cost structure reveals that taxes, rather than refining expenses, account for the bulk of the final price paid at the pump.
At a global price of $65 per barrel (roughly Rs 5,980 at current exchange rates) and with one barrel containing 159 litres, the base cost of crude oil works out to about Rs 37.6 per litre. Yet, by the time petrol or diesel reaches consumers, the retail price often nears Rs 100 per litre, nearly two-and-a-half times the original crude cost.
Contrary to popular belief, refining crude oil is neither prohibitively expensive nor inefficient. In fact, refining a single barrel of crude typically costs between $3 and $5, or about Rs 450. This translates to an average refining cost of roughly Rs 3 per litre, covering energy consumption, labour and maintenance.
Processing crude oil also increases volume. While one barrel contains 159 litres of crude, refining yields approximately 170 litres of petroleum products. Of this, petrol accounts for the largest share at about 72-78 litres, while diesel contributes around 38-46 litres. Other outputs include 15-19 litres of aviation turbine fuel, 8-10 litres of LPG, and 20-30 litres of by-products such as petcoke, naphtha and lubricants.
Once refined, additional costs begin to accumulate. Refining and transportation together add around Rs 6 per litre. Oil marketing companies retain a margin of Rs 8-11 per litre, while fuel dealers earn a commission of about Rs 4 per litre. Refiners themselves make a profit of approximately Rs 4-6 per litre, amounting to about Rs 70 per barrel.
The most significant contributor to the final retail price, however, is taxation. The government levies an excise duty of around Rs 20 per litre, while state governments impose tax ranging between Rs 25-Rs 30 per litre. As a result, government taxes alone account for Rs 40-50 per litre on petrol and Rs 35-40 per litre on diesel.
In total, oil companies such as Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum earn an estimated Rs 10-15 per litre through refining and marketing margins. Governments, by contrast, earn substantially more through taxes.
In the financial year 2023–24, revenue from the petroleum sector contributed approximately Rs 7.5 lakh crore to government coffers, underscoring the central role fuel taxation plays in public finances.
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January 27, 2026, 17:54 IST
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