The Union Cabinet is likely to review prices of petrol and diesel as crude oil price continue to move northward. The average price for the Indian basket of crude in June (till date) is $67.04 a barrel, up 15.59 per cent from the May average of $58. The basket stood at $67.28 barrel as on Thursday.
When inquired if the government was considering a hike in petrol and diesel prices, Petroleum Secretary R S Pandey said “the Cabinet will take a decision. I cannot talk about the proposal we are taking to the Cabinet”.
With this surge in crude price, diesel, which has been in the positive territory for last seven months for the oil marketing companies (OMCs), would also slip into the red. The over-recovery on diesel has come down from Rs 0.32 a litre in the second fortnight of May to Rs 0.05 a litre now.
“In the second half of June, diesel will definitely slip into negative with an under-recovery of around Rs 2 a litre”, said an OMC official. Diesel accounts for nearly 39 per cent of total petroleum products demand.
At the same time, the under-recoveries on petrol, kerosene and LPG cylinder — whose prices are also administered — would increase further. Currently, the under-recovery on petrol, kerosene and LPG is Rs 3.10 a litre, Rs 12 a litre and Rs 60 a cylinder respectively.
From its peak of $142 a barrel in July last year, crude oil prices touched a low of $32.40 in December. When the last price cut in petrol, diesel and LPG was taken in January, crude oil price averaged $42.12 a barrel.
With signs of demand revival becoming apparent in major consuming economies like China and India, crude oil prices have started firming up. The only cushioning for the OMCs is the strengthening of rupee against the dollar.
The OMCs are estimated to have closed the financial year 2008-09 with under-recoveries of Rs 103,908 crore on subsidised sale of petrol, diesel, kerosene and LPG cylinders. They have been compensated for the under-recoveries by means of government bonds and discounts from upstream oil companies.