By The Pulseline News Desk
Sri Lanka is bracing for another round of pressure on fuel prices as global crude oil prices surge above US$ 100 a barrel, but the Ceylon Petroleum Corporation (CPC) says it will not immediately pass the increase on to consumers.
CPC Chairman D.J. Rajakaruna has said the corporation would first discuss the situation with the Government before deciding whether domestic fuel prices should be increased.
The decision comes as the escalating conflict in West Asia and disruptions affecting key shipping routes around the Red Sea and Bab el-Mandeb Strait push up both crude and refined fuel prices.
Brent crude was trading at around US$ 104.06 a barrel, while West Texas Intermediate (WTI) was around the US$ 100 mark, according to the latest market data cited in reports.
Sri Lanka’s next scheduled fuel price revision is due at the end of September, potentially placing the Government under increasing pressure to balance the impact of higher international prices against the cost of living.
CPC absorbs rising costs
Rajakaruna has reportedly said the CPC would continue to supply fuel at existing prices for the time being, despite the sharp increase in international costs.
He has said both petrol and diesel prices had risen significantly as a result of the West Asia conflict but has stressed that the CPC wanted to cushion consumers from the immediate impact.
“The CPC is incurring heavy losses but will not adjust prices based on landed costs,” a senior official has said.
The policy, however, is increasing the financial burden on the State-owned petroleum distributor at a time when international fuel markets remain highly volatile.
Rajakaruna has also pointed out that international price movements do not translate immediately into Sri Lankan pump prices.
Even when global prices remain unchanged, the CPC may have placed an order for fuel around two months before the shipment arrives. The final cost is determined when the tanker unloads, based on the Landed Cost Formula, which incorporates several variables that can change during the intervening period.
This means that the price Sri Lanka ultimately pays for a shipment can differ considerably from the international price prevailing when the order was placed.
Private operators seek flexibility
The pressure is being felt more directly by private fuel distributors.
Private operators, including IOC, Sinopec and RM Parks, have informed the Government that sharply rising landed costs are making it increasingly difficult to sell fuel at the existing regulated prices.
A senior official has said the companies had raised concerns over the additional costs caused by disruptions to maritime routes amid the West Asia conflict.
Energy Minister Anura Karunathilaka has told the media that the Government could consider a request from private operators to adjust their fuel prices according to the actual landed cost.
“There is no legal hurdle to such fuel price adjustments going by the agreements in place with these private operators,” the Minister has said.
The possibility of allowing private operators greater pricing flexibility could therefore introduce a new dimension to Sri Lanka’s fuel market, particularly if international prices remain elevated.
Diesel supply concerns
Meanwhile, the CPC has sought to reassure motorists and businesses that adequate fuel stocks remain available.
Rajakaruna has said sufficient stocks were available at Ceypetco filling stations, despite reports that some private distributors had restricted diesel sales.
The assurance comes amid concerns that supply disruptions or attempts to limit sales could trigger renewed queues and panic buying, particularly if consumers expect prices to rise at the next revision.
For now, however, the CPC maintains that there is no immediate shortage.
More frequent price revisions?
While the Government is attempting to shield consumers from the current spike, the sustainability of that approach is becoming a growing concern.
A senior Government official has said the CPC may have to move towards more frequent fuel price revisions from next month if international crude and refined fuel prices continue to fluctuate sharply.
Sri Lanka currently operates a periodic fuel pricing formula. However, officials have acknowledge that the mechanism does not always capture rapidly changing international market conditions in real time.
As a result, the CPC can be left absorbing significant differences between the price at which fuel is procured and the price at which it is sold locally.
The latest global price surge could therefore force the Government to reconsider how frequently domestic prices are adjusted.
More frequent revisions would allow international price changes to be reflected more quickly at the pump, but could also expose consumers to repeated price increases when global markets remain unstable.
A difficult balancing act
The Government is now caught between two competing pressures: protecting consumers from another fuel-price shock and preventing mounting losses at the CPC.
The current decision to hold prices provides temporary relief to households, transport operators and businesses already facing higher costs.
But if crude remains above US$ 100 a barrel for an extended period, maintaining current retail prices could become increasingly expensive for the State.
The situation is further complicated by the fact that Sri Lanka’s actual fuel procurement costs depend not only on crude prices, but also on refined fuel prices, freight costs, exchange-rate movements and other components of the landed cost.
For consumers, the immediate message is one of stability: there will be no immediate fuel price increase.
But with the next revision approaching and global oil markets increasingly shaped by geopolitical risks, the bigger question is how long Sri Lanka can continue to absorb the shock before higher international costs eventually reach the pump.
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