Petrol sale margins recover

For the first time in nine months, oil marketing companies may show a significant recovery in their retail price margin on petrol.

The margins are expected to turn positive from the fortnight starting September 16, with the average crude oil price expected to be around $65 per barrel.

This is because global crude oil prices have dropped about 9 per cent over the last 10 days to $63-64 per barrel and this has shown signs of bringing some relief to oil marketing companies.

"We will now be able to sell petrol above the cost price at which we procure it from the refineries. This will not be applicable to diesel sales as the cost of high-speed diesel is still very high," a Hindustan Petroleum Corporation Ltd executive told Business Standard.

Analysts were, however, unanimous in their view that this current dip in international crude oil prices could be just that "" the American summer driving season is just over and the peak winter demand for petroleum products in the northern hemisphere is still six weeks away.

Analysts point out that in the last fortnight, oil marketing companies broke even in petrol sales. The cooling off in international crude oil prices is expected to reduce the overall under-recovery by these companies in the current quarter to Rs 15, 000 crore, down from Rs 17, 000 crore in the last quarter.

The government is also expected to issue Rs 14, 000 crore worth of oil bonds to oil marketing companies by the end of this month, as part of a subsidy sharing scheme announced earlier.

However, the overall under-recovery is expected to remain high, with diesel and kerosene prices still far short of international prices.

While diesel under-recoveries are about Rs 3-3.5 per litre, those for kerosene in the last fortnight were Rs 15-15.50 per litre, down from Rs 17 per litre in the first quarter of 2006-07.

A senior Bharat Petroleum Corporation executive, however, pointed out: "Until the government works out a comprehensive strategy to deal with under-recoveries, especially for liquefied petroleum gas and kerosene, one cannot expect any significant improvement in the financial health of public sector oil marketing companies."

SV Narasimhan, finance director, Indian Oil Corporation, was also guarded in his assessment and said, "We do not know whether this trend will continue. The assessments made fortnightly may not turn out to be true."

Analysts also pointed out that if the current downtrend in crude oil prices continued for several months, the government might once again be forced to re-examine the oil subsidy sharing scheme and the quantum of oil bonds to be issued.

"Dropping prices is a positive phenomenon from the subsidy point of view as it, in turn, will lower the subsidy," Partha Bardhan, leader of energy and natural resource practice, KPMG in India, said.

Additional reporting with Gayatri Ramanathan and Utpal Bhaskar