The Indian crude oil basket has crossed $50 a barrel mark for the first time in the last four months, exerting pressure on the oil companies’ margins and driving them to hike prices of naphtha and aviation turbine fuel (ATF).
The Indian basket rose $1.26 a barrel on Monday to $50.46, the highest since November 12 last year. This has also made feed stocks and industrial fuel such as naphtha and furnace oil costlier.
Though the average price per barrel for this quarter is lower ($43.91) to the previous quarter’s average of $53.80, the March average of $44.69 is higher than the January average of $44.02. The over 4 per cent rupee depreciation since January has compounded the situation.
While the oil companies cannot increase the prices of products such as petrol, diesel, kerosene and LPG since there is a cap, price of products like naptha and furnace oil has already moved up. Since January, spot naptha price has moved up by 35 per cent to Rs 25,012 a tonne, while furnace oil has increased by 12.65 per cent. Companies also raised ATF prices by a marginal Rs 158 per kilolitre to Rs 27,275 (in Delhi) from March 16. This increase took place after a gap of two months.
Many users of furnace oil have shifted to other alternative fuels when its prices were rising along with crude oil last year. Hence, the lower demand for furnace oil has kept its prices under check.
Naphtha prices have risen sharply because fertiliser plants prefer it due to its subsidy benefits. Some analysts also pointed out that the prices of petrol could go up if crude continues its northward march. However, that would happen only after the Parliamentary elections.
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“This (crude oil at $50) will impact the companies’ margins on products that have a price cap. For instance, the under-recoveries on petrol, LPG, and kerosene will increase, while the over-recovery on diesel would come down. However, margins on the free products would continue through price adjustments,” said Niraj Mansingka of Edelweiss Securities.
For the current year, the under-recoveries of these companies are estimated at Rs 103, 908 crore due to the loss from sale of subsidised products. “It has been only a day that price has moved up beyond $50. We need to see if this trend continues,” said an oil company official.
“Unless the under-recoveries are compensated and in time, profitability of oil companies would be affected. The rise in naphtha and furnace oil prices will impact the end user industries-fertiliser and power. Low cost Naphtha was proving cheaper than gas for fertiliser companies; the sharp price rise would lead to an increase in fertiliser subsidy,” said Deepak Mahurkar, associate director, PricewaterhouseCoopers.
The fertiliser industry will have to rely on naptha until gas from Reliance Industries’ KG Basin once it becomes available.