Need for PSF in oil sector gains ground

The proposed price stabilisation fund could be triggered in times like what is prevailing now to check extreme volatility and provide relief to both consumers and oil companies.

New Delhi: The government may consider a price stabilization fund (PSF) in the oil sector to control prices of auto fuels like petrol and diesel. In the current phase of firm global oil prices, fuel prices are touching new historic high levels for past one month much to the discomfort of pandemic-hit consumers.

The proposed price stabilisation fund could be triggered in times like what is prevailing now to check extreme volatility and provide relief to both consumers and oil companies.

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A price stabilisation fund can be used in bad times for compensating revenue loss by cross subsidising fund saved from good times, without hurting the consumer. Under the model, the government may not need to support the fund through budgetary allocation but the fund could be self sustaining.

It could build surplus during falling oil prices by keeping retail product prices stable. This money can then be used in a rising market by keeping retail prices under check by compensating losses incurred by oil companies.

Petrol and diesel prices in the country have already breached all-time high levels and with OPEC+ indicating continuation of crude production cuts, oil prices may rise further necessitating further increase in petrol and diesel prices. This could be checked if a price stabilisation fund is created.