The basket of crude oil that Indian refiners buy has dropped 11 per cent in the last fornight, driving down the daily revenue loss of these refiners by more than a fourth to Rs 480 crore.
The falling oil prices will give the oil marketing companies Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) some breathing space as their cost of producing petroleum products dip. The companies, which sell fuels at below production costs, are now losing Rs 7 for every litre of petrol they sell, 37 per cent lower than what they were losing a fortnight ago. Their losses on diesel has come down to Rs 16.22 per litre, down 30 per cent earlier this month.
The price of the Indian basket, which comprises Oman-Dubai sour grade crude oil and Brent dated sweet crude oil in a 62.3:37.7 ratio, fell to $107.93 per barrel on Friday, the latest day for which data are available. It averaged $114.53 per barrel in the first fortnight of August and $126.83 in the last fortnight of July.
| DROP BY DROP Under-realisation of oil marketing companies (Rs/litre) | ||
| Aug 1-15 | Aug 16-31 | |
| Petrol | 11.60 | 7.07 |
| Diesel | 23.23 | 16.22 |
| * The daily under-realisation has come down to Rs 480 cr from Rs 650 cr a fortnight ago | ||
| * Under-realisation this year is expected to be Rs 184,740 cr, down from the earlier estimate of Rs 205,740 cr | ||
| * Indian oil basket prices down 24% in the last six weeks | ||
| * Govt may consider fuel price cut if oil prices dip below $90/barrel | ||
| * Oil companies say $70/barrel price is ideal, $90 still too high | ||
The basket is tracking global oil prices which have also dipped over 22 per cent from their high of over $147 per barrel on July 11 as demand weakens in the US and Europe weakens amid economic slowdown.
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Government officials say that prices are likely to come down to below $100 per barrel after the Olympics in Beijing. “Demand from China is expected to fall once the Olympics are over. That could bring down prices to below $100 per barrel,” said a senior official in the oil ministry.
The official added that if prices of the Indian basket fall below $90 per barrel then the government may consider a slight reduction in prices of petrol and diesel to ease 13-year high inflation rates. “If prices fall below $90 per barrel the government may take jump at the chance of scoring brownie points with the people,” another official in the ministry said. The Congress-led UPA government will make elections in less than six months.
Officials with the oil marketing companies, however, say that only if oil prices fall below $70 per barrel will they make profits of fuel sales. “We may make a few paise profits on petrol at around $80 per barrel, but we will still lose over Rs 5 for every litre of diesel,” said a senior official with IOC, the largest oil marketing company.
The government official said that at $85-90 per barrel the oil companies' under-realisation on petrol may decrease to Re 1-Rs 2 per litre and that on diesel to less than Rs 8 per litre. “If the Chaturvedi Committee recommendations of export parity pricing is implemented, then the companies may actually record profits on petrol sales,” he said.
The government also gives oil bonds to the marketing companies to partly compensate them for selling petrol, diesel, cooking gas and kerosene at below production costs. Oil bonds worth Rs 94,500 crore are expected to be disbursed this year. Oil producers are also expected to give discounts worth Rs 45,000 crore to the refiners during this year.
Diesel sales are almost five times that of petrol. Diesel is more highly subisidised which results in more wide scale use of the fuel. Due to the higher sales, the overall loss on diesel is much higher than petrol.
Petroleum Minister Murli Deora had said last week that the lower oil prices gave the government some relief but prices of petrol and diesel would not be reduced as oil prices are still around 50 per cent higher than a year ago. Last week the prices of the basket was at around $111 per barrel.