As policymakers struggle to combat rising food inflation, the country is faced with another big concern, of crude oil touching a 27-month high of $95.26 per barrel.
India’s crude oil import basket has been rising in line with the global price, which is at a two-year high on a weakening dollar and concern about a fall in US supplies. India meets about 80 per cent of its consumption through imports.
The stocks of oil marketing companies (OMCs) took a beating today. At the Bombay Stock Exchange, Indian Oil lost 2.76 per cent to close at a monthly low of Rs 310.60, Bharat Petroleum lost 3.25 per cent to close at Rs 597.80 and Hindustan Petroleum lost 5.15 per cent to close at Rs 362.70, after touching a monthly low of Rs 359.55. All three companies are scheduled to declare their December quarter results in the last week of January. Analysts expect all of them to report losses.
“This is an extremely worrisome situation for the domestic economy, the industry and consumers. This is a cause for concern for a company like ours, as the cost of oilfield services also moves up and this offsets the increase in realisation. I apprehend the rally may not halt here,” said R S Sharma, chairman and managing director, Oil and Natural Gas Corporation (ONGC), the country’s biggest energy explorer. Its share price, however, gained 1.04 per cent to Rs 1,199.30.
The OMCs, which purchase crude oil at market rates, are required to sell diesel, kerosene and liquefied petroleum gas (cooking gas) at government-set prices, resulting in losses. These are usually compensated by a cash subsidy from the government and discounts on crude purchase from the upstream companies, ONGC and Oil India Ltd.
Diesel, kerosene and LPG together account for 60 per cent of the consumption of petroleum products. Their price has not been increased since June 25. Currently, the three OMCs are incurring under-recovery (revenue loss) of Rs 7 per litre on diesel, Rs 19.60 per litre on kerosene and Rs 366 per cylinder on domestic LPG. These losses would increase when data based on the current fortnight’s average is compiled this weekend. The two private sector retailers, Reliance and Essar Oil, have increased diesel prices. Petrol prices were decontrolled from June 26, 2010, and the OMCs have raised these every now and then to pass on the loss.
The Indian basket of crude oil has averaged $92.85 per barrel in January so far, up 3.4 per cent from an already high December average of $89.78. Crude oil averaged $85.06 in the last quarter. The current fiscal average price is $79.84 per barrel, up 14.4 per cent from the 2008-09 average of $69.76.