What is oil price deregulation?

The stated rationale for deregulation is often that fewer and simpler regulations will lead to a raised level of competitiveness. This, consequently, results in higher productivity, improved efficiency and lower prices overall. Regulatory reform is a parallel development alongside deregulation. Regulatory reform refers to organized and ongoing programs to review regulations with a view to minimizing, simplifying, and making them more cost effective. Cost–benefit analysis is frequently used in such reviews. In addition, there have been regulatory innovations, usually suggested by economists, such as emissions trading.

Deregulation of oil prices, for instance, will lead to more private firms entering the diesel market in the medium term, resulting in greater competition. Implementation of the politically sensitive reforms demonstrate that the government continues to roll out structural reforms gradually, and suggests that more far-reaching structural reforms may be in the pipeline. Oil majors - Indian Oil, Bharat Petroleum and Hindustan Petroleum – are the principal direct beneficiaries of deregulation.

Deregulation can be distinguished from privatization, where privatization can be seen as taking state-owned service providers into the private sector. When oil becomes a profitable market, the sector will once again be attractive for private companies that had left when price restrictions were put in place. A large portion of the output of private refiners is exported, due in part to the restrictions placed on domestic sales. Private firms will not hesitate to restart idled diesel retail operations.