India's oil basket at $93.4/barrel

Off all-time high by a dollar; Nymex crude retreats below $100.

The price of the Indian basket of crude oil is just a dollar away from its all-time high of $94.62 a barrel, reflecting the rally in New York to $100.10 a barrel. The prices later fell to around $99 a barrel.

The high price of the Indian crude basket, which has risen nearly 11 per cent in the last fortnight, is putting strain on the "efficiency" of the country's economy. The basket comprises Oman-Dubai sour (high sulphur) grade crude and Brent dated sweet (low sulphur) crude in the ratio of 61.4:38.6.

"Hiking prices of petrol and diesel again is still an option rather than look for other methods to handle high crude prices if oil companies are unable to meet costs," said Deepak Mahurkar, associate director at PricewaterhouseCoopers. 

RULING HIGH Price of Indian basket of crude oil (in $/barrel)
Feb avg (so far)	90.41
January avg	89.52
December avg	87.92
October-December avg	85.09
July-September avg	72.03
April-June avg	66.52
FY08 avg (so far)	76.79
FY07 avg	62.46
FY06 avg	55.72
Highest price till date (Jan 3, 08) "� 94.62 Lowest price since Apr 05 (May 19, 05) "� 45.6

The government last week allowed its oil marketing companies to raise prices of petrol by Rs 2 per litre and diesel by Re 1 per litre, a move which will decrease the retail losses of Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) by Rs 840 crore in the current financial year.

The companies are projected to lose around Rs 71,000 crore this year as they sell petrol, diesel, kerosene and LPG at subsidised prices.

Mahurkar said the global experience shows that high oil prices help bring economics, technology, and policy together to reduce the carbon intensity of economic growth.

"The combined effect of changes in consumer behaviour, innovation, and government policy eventually improve ability to bear high crude oil prices. Since consumers are not facing the price rise, unfortunately, India is deprived of this benefit," he added. In India, despite a price hike, the demand for fuels continues to grow at a rate of nearly 10 per cent.

The country's crude oil import bill rose 29.5 per cent to $48.02 billion in the first nine months of FY08, compared with the same period last year. Almost 75 per cent of crude oil requirement is imported. Some analysts say fuel prices should be kept high in order to discourage use.

"The continuing rise in oil prices has strengthened the case for a duty cut on oil and oil products," said another Delhi-based oil sector analyst.

The industry, as well as the Left and BJP, have been demanding a that customs duty on crude oil be halved to 2.5 per cent, while that for petrol and diesel be brought down from 7.5 per cent to 5 per cent. A demand for reduction in excise duty has also been made to the finance ministry.

Taxes make up almost 54 per cent of the price of petrol in Delhi, while it is 32 per cent in the case of diesel.

The government is, however, worried that high fuel prices will raise inflation rates significantly. "The onus appears to be on tax reduction now as another round of a fuel price hike is very unlikely in the near future," the Delhi-based analyst said.