Oil on the boil, markets in a roil

Firms step up pressure for oil price hike

Indian crude oil basket crosses record $50 a barrel.

Crude oil prices scaled new highs today, with US light crude touching $57.41 a barrel, up 95 cents in opening trades, and Brent crude quoted at $56 a barrel, up $ 1.12 in London.

The domestic oil companies are feeling the pressure now because the price of crude oil that Indian companies buy has climbed to a record $50 per barrel.

Indian oil companies typically buy a mix of 'sweet' (high grade) and sour (medium grade) crude, which lowers the average cost per barrel. The price of the Indian basket of crude was estimated at $50.34 a barrel, nearly 20 per cent higher than the average price of $42.10 a barrel last month, a senior IOC executive said.

The average price of the Indian basket in March was estimated at $48.56 per barrel against the average price of $42.67 in February. The earlier all-time high for the Indian basket was around $ 48 a barrel in October last year.

Senior executives of oil companies met ministry of petroleum and natural gas officials today and sought a price revision in April.

"There is a sense of urgency now. We are meeting government officials to press for a revision on April 1," an Indian Oil Corporation executive said.

The oil companies have been asking for a price hike of at least Rs 4 per litre for petrol and Rs 3.50 per litre for diesel. The oil companies are pressing for higher prices because international oil prices have soared and because they have to pay a premium to import Euro III petrol and diesel. Oil companies have to abide by Supreme Court guidelines and sell Euro III petrol and diesel from April 1.

Petrol and diesel prices have not been revised since last November when the government refused to raise retail prices of transportation fuels, despite the upswing in crude oil prices.

At the present level of retail prices, companies collect Rs 3.50 a litre less for petrol and Rs 2.80 less per litre of diesel than the cost of production. Indian oil marketing companies stood to lose Rs 18,000 crore during the current financial year as a result of the under-recovery in prices, marketing company executives said.

What is more, the oil companies expect their profits for the current financial year to drop to half the levels reported last year.

"There is no rule on how much one should suffer. On account of the non-revision in retail prices of transportation fuels, we are incurring huge losses. Following the change in the excise duty, the industry has lost hundreds of crone over the last 15 days," a senior executive at a state-owned oil company grimly told Business Standard.

IOC alone stands to incur a loss of Rs 890 crore in 2004-05 on account of the under recovery in the prices in petrol and diesel over and above the Rs 7,350 crore loss incurred because of the subsidy burden on LPG and kerosene.

IOC's subsidiary IBP is expected to post a loss of Rs 560 crore owing to under-recovery.

In the first three quarters of the current financial year, Indian Oil Corporation's net profit has already declined by 22 per cent from Rs 5,154.88 crore in the nine-month period ending December 2003 to Rs 3,998.46 crore at the end of December 2004.

Hindustan Petroleum Corporation's (HPCL) profits have dropped 43.53 per cent from Rs 1,376.89 crore to Rs 777.53 crore, and Bharat Petroleum Corporation (BPCL) has recorded a 52.03 per cent drop in its profit from Rs 1280.70 crore in the nine month period ended December 2003 to Rs 614 crore in the nine month period April- December 2004.

The state-owned oil companies are not alone in bleeding. Private refiner and marketer Essar Oil too has been incurring losses.

"Neither do we have control of the input costs nor do we have control of the pricing at the retail level. The state-owned oil companies with their refining and marketing business make a killing on gross refining margins which are offset by losses on the marketing front. We do not yet have a refinery and we are bleeding as the government has capped prices at the November level. We are losing anywhere between Rs 3 crore and Rs 5 crore a month on sales of diesel and petrol," a senior Essar Oil executive groused.

On the stock market, the share prices of refinery and oil marketing companies declined. The HPCL scrip price declined 2.3 per cent to Rs 331.35. The BPCL scrip's price declined 1.5 per cent to Rs 386.95. Among refineries, the Kochi Refineries scrip declined 2.32 per cent to Rs 164.30, MRPL's scrip price declined 2.72 per cent to Rs 50.10 and Indian Oil Corporation's stock price declined 1.72 per cent to Rs 468.

---

Global crude oil prices hit a new high

Oil marketing firms' profits in 2004-05 could fall to half the level in 2003-04

Oil firms estimated to lose Rs 18,000 crore this year because of under-recoveries

Under-recovery at Rs 3.50 per litre for petrol and Rs 2.80 per litre of diesel

IOC alone stands to lose Rs 890 cr in 2004-05 on account of under recovery in prices