There is good news for India, which imports 80 per cent of its annual crude oil requirement. International crude prices are expected to soften, following signs of a weakening US economy in the wake of the rating downgrade of its bonds by Standard and Poor’s.
Expectations of a decline in US consumption and a weaker dollar have already put pressure on crude oil prices. Demand has fallen significantly in the US, which accounts for around 30 per cent of crude oil consumption and meets 60 per cent of its demand through imports. The trend, if it continues, could see domestic oil companies ending their losses on retail of petro products like diesel.
From around $125 per barrel at the start of the Libyan crisis earlier this year, Brent crude has slipped 13 per cent. “Brent crude has already declined to $109 per barrel. It is anticipated that the dollar will depreciate and make imports cheaper for us,” said P K Goyal, director (finance), Indian Oil Corporation, the country’s biggest crude oil refiner and petroleum products marketer.
The domestic refiners import crude oil at international prices but sell diesel, kerosene and domestic LPG at government-regulated prices. As a result, they incur heavy losses and have to depend on the government’s subsidy mechanism. For the quarter ended June 30, these companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum — incurred gross loss of Rs 45,000 crore. At current rates, these companies could have lost another Rs 71,340 crore in the July-March period. The lower price will reduce the government outgo on subsidy and also help the upstream companies, Oil and Natural Gas Corporation and Oil India, which bear one-third of the oil marketers’ loss.
Experts expect crude oil prices to decline below $100. “My reading is that it will be in the range of $95-100 per barrel,” said A K Hazarika, chairman and managing director, ONGC. He added while a decline was likely, it was unlikely to be similar to 2008, when speculative elements caused prices to crash.
The marketing head of a private oil company said the Indian basket of crude could come down to as low as $80 per barrel. “Fuel marketing may turn positive in a month’s time if the declining trend continues. We may even see a reduction in prices of petrol and diesel, which nobody would have anticipated a month before,” he said. These companies currently incur a loss of Rs 6 on a litre of diesel and make no money on petrol. They also incur losses on kerosene and LPG.
