Crude Oil Hit a 5-Month High — So Why Didn't Petrol Get More Expensive?

The Indian crude oil basket hit $128.70 a barrel on 15 September 2026 — its highest level since April. If crude were the only thing determining what you pay at the pump, that should be a real, visible jump in petrol prices. It mostly wasn’t. The reason comes down to a price build-up with a lot more moving parts than “crude goes up, petrol goes up” — and a central excise duty cut earlier this year that’s quietly absorbing a lot of the shock.

Crude oil is only one ingredient

At $128.70 a barrel and today’s exchange rate, crude oil alone works out to roughly ₹77.7 per litre — before refining, freight, and the oil marketing company’s (OMC) own margin are added to form what’s called the “base price.” On top of the base price sits central excise duty (a flat, government-set rupee amount, the same nationwide), dealer commission, and finally state VAT — and VAT is where a lot of people’s understanding of fuel pricing goes wrong.

The part almost everyone gets wrong: VAT is a tax on the tax

State VAT isn’t calculated on the base price alone. It’s calculated on the base price PLUS excise duty PLUS dealer commission — all added together first. That means every rupee of excise duty effectively gets taxed again by VAT on top of it. This compounding is a real, quantifiable reason retail fuel costs meaningfully more than crude oil plus a “reasonable margin” would suggest, and it’s a big part of why cutting excise duty (which lowers both the excise line itself AND the VAT calculated on top of it) has an outsized effect on the final price compared to what the excise cut alone looks like.

A representative build-up, litre by litre

Using figures broadly in line with current levels for petrol:

On this build-up, tax (excise duty plus VAT) accounts for roughly a fifth of what you actually pay per litre — and that’s after a significant excise cut. Diesel’s story is even more striking: central excise duty on diesel was brought down to effectively ₹0 per litre in March 2026, a multi-year low, leaving state VAT as almost the entire tax component on a litre of diesel today.

Why the government cut excise duty now

In March 2026, the Finance Ministry cut the Special Additional Excise Duty on both fuels significantly — a move aimed at easing cost pressure on oil marketing companies rather than a response to any single crude spike. That earlier cut is exactly what’s giving the pricing system room to absorb a crude spike like September’s $128.70 without an equivalent jump at the pump — OMCs and the tax structure can flex before the increase has to reach the customer directly.

Why your neighbour in another state pays a different price

Base price and central excise duty are identical nationwide — the entire reason petrol costs different amounts in different states is state VAT, which varies significantly (commonly somewhere in the 15-40% range depending on the state) and, per the compounding effect above, applies to the entire pre-VAT total, not just the base price. A few percentage points of VAT difference between two states translates into a real, visible per-litre price gap.

Enter your own base price, excise duty, dealer commission, and state VAT rate into our Petrol Price Build-Up Calculator or Diesel Price Build-Up Calculator to see your own exact breakdown and tax share.