Govt may issue fresh oil bonds

OIl sniffs $100, fuel price hike inevitable, says industry.

As supply concerns and a weakening dollar push international crude oil prices towards the psychologically important $100 per barrel mark, the government is likely to issue additional oil bonds worth roughly Rs 7,000 crore to help the three oil marketing companies tide over under-recoveries owing to the differential between consumer prices and input costs.

"The value of the bonds is likely to go up to Rs 30,000 crore for the financial year as the under-recoveries for the year at current crude oil prices are seen at around Rs 70,000 crore," said Petroleum Secretary M S Srinivasan today.

Under-recoveries for the full year for Indian Oil Corporation, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd were previously seen at around Rs 55,000 crore.

The Indian basket of crude "" which comprises Oman-Dubai sour grade crude oil and Brent dated crude oil in a 59.8:40.2 ratio "" also touched a new high of $89.36 per barrel.

Meanwhile, Petroleum Minister Murli Deora met Prime Minister Manmohan Singh again today "" the second meeting in seven days "" to discuss a relief package.

"We are aware of the situation and are working towards an additional relief package. We have three options "" give additional oil bonds, hike fuel prices or reduce duties of products," he said.  Though officials reiterated that there was no price hike in the offing, industry officials said that the government may have no choice in the matter.  Oil marketing companies are suffering heavy revenue losses "" to the tune of Rs 240 crore per day "" selling petrol, diesel, LPG and kerosene at subsidised prices.  The government has been unable to raise retail prices of automobile fuels with elections in Gujarat and Himchal Pradesh coming up in end-November and December.  The government's relief package so far "" Rs 23,458 crore of oil bonds committed for the full financial year and discounts by oil producers "" will no longer be enough as oil prices have beaten all forecasts.  "Borrowings of Indian Oil Corporation (IOC), the largest marketer of petroleum products, have risen to Rs 28,000 crore so far this financial year against Rs 27,000 crore in the entire financial year last year," said IOC Chairman S Behuria.  The company's borrowings are set to rise to Rs 3,000 crore every month for the rest of the year, he added.  Crude oil prices are on the boil primarily due to a weakening dollar and heavy demand from consuming countries such as the US.  "The dollar depreciation against major currencies is one of the primary reasons for the spike in oil prices. Besides there is the geopolitical tension in West Asia, which is a major producing area," said Nagarajan Narasimhan, head, Crisil Research.  Narasimhan, however, added that the surging price of crude oil was not an immediate worry as "Indian refiners primarily buy a mix of crude oil that is 60 per cent sour grade oil which is cheaper."  This mix, called the Indian basket of crude oil has averaged $88.25 per barrel in November so far. 
 

IN CHOPPY WATERS

Factors pushing up oil prices

* Supply concerns due to a storm in the North Sea

* Weakening dollar value against major currencies

* Bomb attack on a pipeline in Yemen on Monday

* Approaching winter

* Geo-political tensions in West Asia

Factors that may ease oil prices

* $100/barrel is a psychologically significant mark and prices may fall after the mark is reached

* Above $100/barrel, demand in some economies may weaken

* Gas availability, which is likely to slowly replace oil