Dip in global prices a relief for OMCs

With the drop in international petroleum product prices, the losses of oil marketers on diesel would come down by around Rs 1 per litre, while petrol will move into positive territory from the current loss of 71 paise per litre from tomorrow.

Oil companies calculate their under-recovery or over-recovery of a product based on its trade parity (80 per cent import price weight and 20 per cent export price weight) for the previous fortnight.    

The price of the Indian basket of crude oil, that averaged $113.92 per barrel in the last fortnight of July, has averaged around $107 so far in the current fortnight, down six per cent.

Global product prices have declined on apprehension of a fall in consumption in the US after a rating downgrade recently. The US accounts for around 30 per cent of global crude oil consumption and meets 60 per cent of its demand through imports.

The oil companies are likely to make 10p on every retailed litre of petrol. The price of aviation turbine fuel (ATF) is expected to come down by around Rs 1,000 per kl from the current Rs 57,844 in Delhi.

Currently, the oil marketing companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum — incur an under-recovery or revenue loss of Rs 6.06 per litre of diesel.

These companies, which purchase crude oil at market rates, are required to sell diesel, kerosene and liquefied petroleum gas (LPG) at government-subsidised prices, resulting in losses.

The decline will help OMCs to perform better in the current quarter. All the three public sector companies incurred a heavy loss in the first quarter on heavy under-recovery that was not fully compensated by the government.

On petrol, a decontrolled product, these companies incur a loss as they have not passed on the entire increase.

“The industry’s loss on petrol will get wiped out from tomorrow midnight and there will be a marginal profit. If a similar trend continues in global prices for the next fortnight, there could be a reduction in prices,” said an industry official.

The price of ATF, that account for 40 per cent of the operating cost for airlines, are already 40 per cent higher compared to last year’s corresponding price and exerting pressure on airlines.

The decline, a relief, comes after a gap of six weeks during which prices moved up thrice.