Fuel price cut, oil scrips tumble

Petrol price cut by Rs 2 per litre; diesel, Re 1 per litre.

The government today announced a cut in the price of petrol by Rs 2 a litre and of diesel by Re 1 a litre, a move that saw the shares of oil companies tumbling.

Petroleum Minister Murli Deora said the decision "" which could temper inflation, according to Finance Minister P Chidambaram "" followed requests from parliamentarians and Congress President Sonia Gandhi in this regard. He promised further "revision in retail prices in the future."

On a day when a flattish Sensex closed at a gain of 0.11 per cent, shares of the largest oil marketer, Indian Oil Corporation, were down 4 per cent to end at Rs 463.35.

The company's under-recovery "" the gap between the purchase and sale prices of products "" is set to increase from the current Rs 50 crore a day.

Hindustan Petroleum Corporation Ltd, another marketer, said the cut would mean an additional burden of Rs 100 crore a month.

"The daily under-recovery will increase to Rs 18 crore from Rs 15 crore," said a company executive. The company's stock closed 3.44 per cent down at Rs 291.95.

While these marketing companies had been making around Rs 4 a litre on petrol till now, they had been losing money on the other three products "" diesel (Rs 0.45 per litre), kerosene (Rs 14.40 per litre) and LPG (Rs 150 per cylinder).

These losses will go up following today's "political" decision. Shares of oil exploration and production major ONGC slid 1.26 per cent to Rs 856.50. It would have to bear a part of the under-recovery burden. Analysts expect stocks of oil companies to remain weak tomorrow, too.

The total under-recoveries are now estimated at Rs 60,000 crore, against Rs 73,512 crore earlier, since the Indian crude basket has slid to $57-58 a barrel from $67 in June, when the price hike was effected. The price touched a record high of $75 in August.