The recent surge in crude oil prices will not impact retail prices in the near future because the government says the price is still within its comfort zone.
“There is no cause for worry. Oil prices move both ways — upward and downward. We have weathered a price as high as $147 last year and so today’s situation is comfortable,” said R S Pandey, secretary, Ministry of Petroleum and Natural Gas.
International crude oil prices crossed the $60 a barrel mark yesterday — up from a record low of $32.40 in December last year — on the back of improved sentiment over the economic recovery, especially in China and Europe.
The Indian basket of crude has averaged $55.75 a barrel in May so far, up 11 per cent from the April average. When compared to the March average of $46.02, price is up by over 20 per cent.
These prices are, however, much lower than the average price of $83.57 a barrel for the Indian basket during the previous year, which led to under-recoveries of Rs 103,908 crore for the three government-owned oil marketing companies — Indian Oil, Hindustan Petroleum and Bharat Petroleum.
The huge under-recoveries were the result of negative margins on all the four subsidised products and are usually compensated by oil bonds issued by the government and discounts from upstream oil companies. The under-recoveries estimated at a record Rs 103,908 crore for last year, is certain to be much lower this fiscal, given the drop in crude oil prices from last year's peak.
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The government-owned oil marketing companies are also shrugging off the increase for now. "So long as prices are in range of $50 to $60 a barrel, there is not much cause for concern," said a senior official of Indian Oil Corporation, the country's largest oil marketer and refiner.
The marketing companies are currently incurring losses on the sale of petrol (Rs 1.54 a litre), kerosene (Rs 11.80 a litre) and LPG cylinders (Rs 88 per cylinder) according to the data available for the current fortnight. It is only diesel that is bringing positive margins of Rs 1.09 a litre.
The recent price surge means that diesel, which accounts for the bulk of fuel consumption, will also fall into the negative territory.
“If the current crude oil price is sustained, there will be more under-recoveries. Diesel, which has remained in the positive territory for nearly six months now, is certain to turn negative in the first fortnight of June,” said Niraj Mansingka of Edelweiss Securities.
Even private companies like Reliance Industries and Essar Oil, which restored retail operations when prices came down to $35-36 a barrel in December last year, are now feeling the pinch.
“Petrol margins turned negative from second half of April. With the continuous surge, even diesel margins are under pressure,” said an Essar Oil spokesperson. The company operates 1,200 retail fuel outlets.