Diesel sales pinch little now

Softening of global crude oil prices for the third straight week has brought more cheer to the country's oil marketing companies, close to breaking even on diesel sales after a fortnight of positive retail margins on petrol.

The oil marketing companies have been making a profit of Rs 2 per litre on petrol through the second half of September, the first time in nine months their margins on petrol have been positive.

For diesel, the under-recovery, or gap between the purchase price and sale price for the marketers, has dropped from Rs 3-3.5 per litre two weeks ago to 13 paise per litre.

"While petrol margins are positive, they are almost at break-even in diesel. However, oil marketing companies are bleeding on kerosene and liquefied petroleum gas (LPG) cylinder sales," said Petroleum Secretary MS Srinivasan.

Sarthak Behuria, chairman of Indian Oil, which owns about half the retail outlets in the country, said, "We are currently earning Rs 2 per litre on petrol sales and continue to lose 13 paise per litre on diesel sales."

Oil marketing companies still lose Rs 16 per litre on kerosene and Rs 170 per cylinder on LPG.

Oil company executives said under-recoveries on diesel were expected to even out, and even turn positive, if the price of the Indian crude oil basket dropped by another $2-3 per barrel.

International crude oil prices today dropped to a seven-month low, with West Texas Intermediate closing at $59.30 per barrel and London Brent at $55.73 per barrel. The price of the Indian basket today dropped to $56 per barrel.

Commenting on the slide in oil prices, Finance Minister P Chidambaram said the government's oil subsidy bill was likely to come down.

"It only means the subsidy burden will come down...subsidy paid by firms like Oil and Natural Gas Corporation and the government will be less to that extent," Chidambaram told reporters on the sidelines of a seminar on small and medium industries. "The money saved can be used for reinvestment," he added.

Under an ad hoc formula, upstream companies like ONGC and Oil India pay about one-third of the total subsidy incurred by state-owned oil marketing companies on the sale of petrol, diesel, kerosene and LPG.

The under-recoveries on LPG and kerosene remain Rs 107 a cylinder and Rs 16 per litre, respectively.

Cooling international crude oil prices are expected to reduce the overall under-recoveries for the oil marketing companies in the current quarter to Rs 15,000 crore, from Rs 17, 000 crore in the last quarter.

However, with LPG and kerosene prices still far below international prices the overall under-recovery was expected to remain quite high, analysts said.

Despite falling crude oil prices, the stock price of refinery companies, Indian Oil Corporation (IOC), Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL), showed uneven movement with HPCL losing 0.32 per cent and closing at Rs 284.15, while BPCL gained a modest 0.42 per cent to close at Rs 369.90. Indian Oil gained 1 per cent and closed at Rs 534.70.

Essar Oil was the day's major gainer among oil stocks, gaining 4.4 per cent and closing at Rs 58.15. ONGC was the big loser, closing at Rs 1,133.30, losing 2.21 per cent.