The fall in the value of the rupee against the dollar has pushed back the break-even point of the country’s oil marketing companies to $60 per barrel from the earlier $67 per barrel as the companies are paying more for oil in rupee terms.
The rupee, which fell 8.88 per cent since the beginning of September to an all-time low of less than 49 per dollar last week, has negated much of the impact of an over 45 per cent dip in crude oil prices since early July.
As the value of the rupee falls, the companies have to pay more for crude oil in rupee terms, resulting in increased under-realisation on the fuels that they sell.
The oil companies, Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation, sell petrol, diesel, kerosene and cooking gas at below-production costs, due to which they are projected to lose around
Rs 1,60,000 crore this financial year. These four fuels make up around three-fourths of the total sales of these companies.
Every Re 1 per dollar decrease in the value of the Indian currency against the US dollar increases the annual under-realisations of these oil marketing companies by around Rs 3,000 crore.
“If the rupee had remained at around 42-43 per dollar, our under-realisations would have been almost wiped out. But at the current value of the rupee, the break-even point will come at around $60 per barrel,” said a senior official with an oil marketing company.
Petroleum Minister Murli Deora had said last month that the oil marketing companies would break even $67 per barrel. He had added that domestic fuel prices would not be reduced till then.
The basket of crude oil that Indian refiners import was $72.87 per barrel on Friday, the latest day for which data are available. The basket has averaged $80.77 per barrel so far this month compared with $96.81 per barrel in September.
Oil prices are projected to fall in the short term as demand decreases on account of an impending global slowdown.
Lower global oil prices, however, mean that the oil companies will not incur any under-realisation on fuel sales from that day onwards. The cumulative under-realisation for the period when the prices were high would remain, an official with IndianOil explained.
During this financial year, the government is likely to give the oil companies bonds worth Rs 94,600 crore to partly compensate them for selling their products at below-production costs.
State-owned oil producers such as Oil and Natural Gas Corporation and Oil India are also likely to give discounts worth around Rs 45,000 crore, while the marketing companies may bear up to Rs 20,000 crore. That still leaves a gap of around of around Rs 400 crore, which is unaccounted for.
“In July this gap was almost Rs 42,000 crore. Now it is around Rs 400 crore. We are hoping oil prices come down further,” said another official with Hindustan Petroleum.
