• Inventory lags, taxes, fiscal policy continue to shape retail fuel prices
• Local fuel prices based on Murban and Platts benchmarks, not Brent crude: CPC
• Consumer groups question lack of transparency in pricing mechanism
• Economists caution that affordability must be balanced against fiscal stability

At a Colombo filling station queue, the conversation among tuk-tuk drivers waiting to top up their tanks kept circling back to the same complaint: the news said oil was getting cheaper, so why hasn’t much changed at the pump? 

The gap between the headlines and the meter reading has become a source of quiet, mounting frustration. That frustration is not misplaced, but it is also not the full story. As diplomatic progress eased the Middle East’s war premium and reopened the Strait of Hormuz, Brent crude fell from over $ 120 a barrel to a more stable $ 70.50–73 range. By Thursday (2), Brent stood at $ 72.98 a barrel, down roughly 1.03% on the day, while West Texas Intermediate had slipped below the $ 70 floor to $ 68.97.

Yet when the Ceylon Petroleum Corporation (CPC) announced its price revision at midnight on Monday (29 June), the reaction on Colombo’s streets was not relief but scepticism. Lanka petrol 92 octane dropped by a modest Rs. 20 to retail at Rs. 414, while Lanka auto diesel fell by Rs. 25 to Rs. 382. Premium 95 octane, at Rs. 495, and Lanka kerosene, at Rs. 285, remained unchanged altogether.

The anatomy of a delayed invoice

The disconnect, industry sources explain, lies in the hidden mathematics of State procurement and a brutal pipeline lag. While consumers expect global price drops to hit filling stations instantly, the CPC operates on a heavily delayed inventory timeline.

According to Central Bank of Sri Lanka (CBSL) data, the island was hit by a lagging financial avalanche just as global markets began to cool. Sri Lanka’s monthly fuel import bill rose by 112% year-on-year to $ 536 million in May, following an $ 886 million outlay in April. Between January and May 2026 alone, the country spent $ 2.7 billion on fuel imports – effectively 67% of its entire 2025 annual oil budget in just five months.

This meant that the fuel being pumped into vehicles today had actually been secured and financed through Letters of Credit weeks earlier, at the peak of the international price spikes. The CPC was bound to exhaust its inflated, expensive stock before it could average down retail prices with the cheaper shipments now arriving.

‘We do not import Brent crude’: CPC

CPC Managing Director Dr. Mayura Neththikumarage pushed back against the assumption that Sri Lanka’s pricing should track Brent crude headlines directly.

“The situation in Sri Lanka regarding fuel pricing is often misunderstood. It is important to realise that we do not produce petrol and diesel solely from crude oil; for example, the CPC imports about 150 refined products. While we do bring in crude oil to refine, not all of our fuel is produced this way,” he told The Sunday Morning.

He noted that critics often used the wrong benchmarks to challenge CPC pricing. “Many point to Brent crude prices shown on television, but Sri Lanka does not import Brent crude. We use the Murban index and Platts prices.”

Dr. Neththikumarage further argued that the Government and the CPC had absorbed enormous losses during previous price surges rather than passing them fully to the consumer. “In recent months, we absorbed Rs. 29 per litre of diesel, and at one point, we were absorbing over Rs. 200 per litre. We did not raise prices to the global peak and cannot drop them by a massive margin now; instead, we are matching the current market costs,” he said. 

He maintained that no personal profit was involved in the pricing decisions, with any surplus directed to the Treasury or reinvested in infrastructure. He stressed that the CPC’s goal was to manage through its own cash flow rather than take on bank loans.

The fiscal shadow

Following the International Monetary Fund (IMF) Executive Board’s completion of the combined Fifth and Sixth Reviews of Sri Lanka’s $ 3 billion Extended Fund Facility (EFF) in late May, the mandate for the State has remained uncompromising: Sri Lanka must maintain strict cost-recovery pricing for utilities and fuel to eliminate State-Owned Enterprise (SOE) losses. 

Following the minor fuel price drop, consumer groups and the Electricity Consumers’ Association mounted pressure on the Public Utilities Commission of Sri Lanka (PUCSL), demanding an urgent downward revision, arguing that since much of the imported auto diesel fed directly into thermal power generation, the public should not have to wait for the scheduled fourth quarter review to see the benefit of cheaper global fuel. Public submissions on fuel costs for electricity generation remain open until 14 July.

‘CPC acts on its own will’: Consumers

For consumer advocates, the core issue is not the price itself but the absence of a visible, predictable formula behind it. National Movement for Consumer Rights Protection (NMCRP) Chairman Ranjith Withanage said transparency, not price movement alone, was the pressing concern.

“Our economy is fragile. We have to keep production stable and keep investors confident. Let’s say global prices reduce by 50%. Our prices should be reduced by half of that. We accept the price increases, but transparency is a must. What we see now is that the CPC acts on its own will. The Government must look into this. Everything has increased, from small fruits and food packets to bus fares. The Government says one thing and the Opposition says another, and consumers are left confused. We need to know the correct formula of fuel pricing,” he stressed.

Why prices rise fast and fall slowly

Economist Umesh Moramudali, speaking to The Sunday Morning, attributed part of the public’s frustration to a well-documented economic pattern rather than to fuel pricing alone. 

“In economics, there’s a saying: prices are downwardly sticky – although prices increase instantly, they won’t really come down even though fuel prices or other costs decline. The best way to handle this is to curtail the price increases through curtailing inflation,” he said.

On whether rigid pricing was hurting tourism, agriculture, and small businesses, Moramudali said it was, but that the alternative carried its own risks. “When you have a significant external shock like the US-Iran war that’s happening now, it is important that the Government absorb some of those losses, assuming they are short-term shocks. I think the Government absorbed some of the shocks to a certain degree. When you protect unnecessarily, then it’s going to have a huge impact on the budget deficit,” he said.

He does not believe the pricing formula requires a complete overhaul, but said transparency remained essential.

On balancing fiscal discipline with the public’s need for affordable energy, Moramudali pointed to a longer-term shift rather than a quick fix. “We have to encourage more public transport and reduce fuel consumption for electricity generation. If we do an energy transition – and some things are slowly happening on that front – then you can reduce oil imports. I don’t think it can be done in the short term, but we will see, in maybe a three- to five-year mid-term trajectory, whether we can go towards that,” he said.

Multiple attempts to contact Deputy Minister of Energy Arkam Ilyas were unsuccessful.