"Diesel deregulation at this juncture will lead to a price increase and it would be unreasonable to expect at this juncture," said Oil Secretary S. Sundareshan on the sidelines of an annual economic editors' conference. "It's not possible with current crude oil prices."
In June, the Indian government ended controls on petrol prices and raised prices of diesel, cooking gas and kerosene. It also said diesel prices will eventually be freed to boost public finances and open up a sector long dominated by state-run firms.
"It is proposed that increase in prices of diesel will be staggered over time to minimize the overall impact on the poor and the vulnerable," an Indian Oil Ministry report said at the time.
The Indian government may intervene in the pricing of petrol and diesel in case of a sharp rise or volatility in global crude oil prices, the report added.
"The June decision was taken when crude oil price was at $73-74 a barrel. Since then, it has risen to $82-83 a barrel and it will be unfair to think that diesel price will be market determined at these levels," Sundareshan said.
India, which imports about 80 percent of its crude oil needs, has been seeking to increase local output and acquire energy assets overseas to feed its growing refining capacity in bid to become Asian refining hub, according to an earlier report.
Lifting control on diesel prices would make the retail market more lucrative for private firms such as Reliance Industries, Essar Oil, and Royal Dutch Shell as diesel accounts for a third of India's oil demand, while petrol's share is barely 10 percent.
Since June, India allowed Oil and Natural Gas Corp. (ONGC) and Oil India Ltd. to charge higher prices for the gas produced from blocks allocated to them without competition.
The country expects to produce 12.67 percent more crude oil at 759,200 barrels per day in the current fiscal to March 2011 from a year ago, while local gas output was likely to increase 12.8 percent to 53.59 billion cubic meters, the Indian government said in the June report.
