Oil firms push for price hike

Elections over, companies look for some relief as global prices breach $41.

Domestic oil marketing companies are considering a proposal to increase petrol and diesel prices by Re 1 a litre from Sunday, even before the new government assumes office at the Centre.

Oil companies have been demanding an increase of Rs 4 and Rs 5 a litre in the prices of petrol and diesel, respectively.

However, a Re 1 per litre increase in the prices is expected to provide some relief to them in the face of flaring international prices of crude oil.

Oil prices yesterday vaulted to a 21-year high on fears that supplies, already stretched by world economic expansion, could be hit by an attack on oil facilities in West Asia.

US light crude touched $41.50 a barrel, an all-time high in the 21-year history of the New York Mercantile Exchange contract. London Brent stood 34 cents higher at $38.83 a barrel.

Warnings from a senior Russian official that deliveries from the world's second biggest oil exporter have hit a ceiling after many years of growth underlined the strain on global supply.

"Realistically, the capacity of suppliers does not today meet growing demand in places such as China or India. And you have to take into account the state of affairs in Iraq," Semyon Vainshtok, head of Russia's oil pipeline monopoly told Reuters.

Economic expansion in China, bolstered by renewed US growth, has placed world supplies under increasing strain, leaving the Organisation of the Petroleum Exporting Countries, bar top producer Saudi Arabia, pumping almost flat out to meet demand.

Consuming nations are worried that economic growth may suffer because of the surge in oil prices. So far the fears appear to have proved unfounded.

Oil companies have been arguing that the steep international prices of crude have eroded all the over-recoveries they have been making from petrol and diesel, which are being used to partly subsidise domestic liquefied petroleum gas (LPG) and kerosene sold through the public distribution system.

These companies have pointed out to the petroleum ministry that petrol and diesel prices were last revised on January 1, 2004, and international oil prices have since gone up by $ 6 a barrel.

The oil companies were taking a hit of Rs 120 crore every month on account of the sale of these two auto fuels. The domestic oil companies have also been demanding a Rs 5.68 a litre increase in PDS kerosene prices and Rs 101.79 a cylinder increase in LPG prices.

They say the government has been reducing LPG and kerosene subsidy by 33 per cent each year from 2003-04 to phase out LPG subsidy completely by the end of the current year and retain only 15 per cent subsidy on PDS kerosene.

Although the prices of these two cooking fuels were last revised more than two years ago, the oil companies cannot not increase their prices at this juncture before getting the government's approval.