Domestic oil falls below $50

Fuel price review meeting on January 31.

The price of the Indian basket of crude oil breached the psychologically important $50-a-barrel mark, triggering expectations of, and demands for a price cut in auto fuels.

A price review meeting has been fixed for January 31.

The basket was at $49.85 on Wednesday, the latest day for which data is available. This is the lowest level in the current financial year and sharply below the record high price of $75.20 a barrel on August 8, 2006.

Petroleum Minister Murli Deora discounted the one-day movement of price below $50 and said that prices must "stabilise" at these levels for a month to trigger a price review. This view, however, is not supported by the industry. "There is a good scope for product prices to move downwards," said V Raghuraman, principal advisor to the Confederation of Indian Industry. 

ON THE DOWNSIDE
Period	$/barrel
January 17	49.85
December average	60.35
November average	57.80
October average	57.27
September average	61.04
August average	70.84
April-June average	67.13
July-September average	67.71
October-December average	58.45
FY07 average (so far)	63.73
FY06 average	55.72
FY07 lowest price till date (January 17, 2007)	49.85

"It is also time for government to revisit subsidies, and see if they can build some reserves for future price shocks," he added.

While some analysts expect prices to remain in $50 range "plus or minus 5 per cent", there is a group which is expecting a hardening of prices.

"Prices must be market determined. The current system, which hides a lot of inefficiencies, needs to be overhauled" says an energy analyst.

Prices of petroleum products have typically been influenced by politico-social factors. The last price cut in November was triggered by Congress leader Sonia Gandhi demanding some relief for the people, though economists were against the move.

These cuts hit oil marketing companies. While retail margins on petrol (at over Rs 1 a litre) and diesel (23 paise) have recently turned positive, oil marketing companies continue to post under-recoveries on LPG (about Rs 150 per cylinder) and Kerosene (about Rs 15 per litre.

The chairman and managing director of oil marketing firm Hindustan Petroleum Corporation Ltd (HPCL) said that petroleum product prices are already too low.