With the government giving limited freedom to state-run oil companies to fix auto fuel prices within a narrow price band, petrol prices are set to go up by Rs 0.57 per litre and diesel by Rs 0.92 per litre from August 1.

The price hike in New Delhi would be sharper due to the increase in sales tax. Diesel price in Delhi will go up by Rs 2.40 per litre, after factoring in sales tax of Rs 1.60 per litre.

While state-run Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd want to raise petrol and diesel prices by Rs 1.50-2 per litre each, the narrow price band, within which the oil firms can revise prices, will see only a marginal increase in prices, industry sources said.

The government had on Monday allowed oil marketing companies to raise or lower petrol and diesel prices by up to 10 per cent every fortnight in step with the cost.

As per the new mechanism, every fortnight, the mean of three months' average landed price of petrol and diesel and last one year's rolling average price would be calculated. Ten per cent of this mean price would be the ceiling and floor within which the oil firms can revise rates.

As per the formula, the landed price of petrol will be Rs 12.88 per litre and diesel Rs 13.2 per litre.

"Diesel prices are already on the top end of the band, while there is some leverage in petrol," the sources said, pointing that the oil firms were yet to receive any official notification, in absence of which they will not have any freedom to revise prices and would be solely dependent on government nod even for a marginal hike in prices.

Petroleum Minister Mani Shankar Aiyar said if the required increase or decrease in petrol and diesel prices in a particular fortnight is more or less than the 10 per cent price band, the oil companies will be 'obliged to inform the petroleum ministry.'

"Under the new dispensation, when international crude prices surge, domestic fuel prices will be calibrated due to the conditions of taking the mean of average landed price of last three months (which would reflect the current trend) and the landed price in last one year (which will moderate the hike)," sources said.

In effect, in times of hike in global prices, the oil companies will not be able to match domestic prices with import parity and will have to sell petrol and diesel below the import parity price. However, when international prices fall, the oil companies can recover some losses as the entire drop in prices will not be passed on the consumers.