 "An oil refinery")
When New Delhi hosts the Twelfth Petrotech, the global oil industry will be meeting for the first time after the last Wednesday’s meeting of the Organisation of Petroleum Exporting Countries. Despite low crude prices weakening the oil producing companies world over, forcing even Saudi Arabia to go for fiscal borrowing in October 2016, for the first time in its history, Opec was unable to resort to decide on production cut all long because of opposition from Iran.
On road to recovery after lifting of economic sanctions in January 2016, Iran had been resisting production cuts. The 13-member grouping decided to cut crude oil output by 1.2 million barrels per day (mbd) from January 2017 to maintain a production cap of 32.5 mbd, the first such cut in eight years.
Russian Energy Minister Alexander Novak was quoted on Wednesday saying his country, too, will join the Opec effort and was ready to gradually reduce its oil output by up to 300,000 bpd from January onwards. The country reportedly played a crucial role in mediating between Iran and Saudi Arabia. Iran has been allowed to increase its production.
Indian companies Oil and Natural Gas Corporation, Oil India, Cairn India and even Reliance Industries have been impacted by the slump in crude price that started in mid-2014, though it helped Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation to come out of their perennial losses. Low global prices also helped the government to decontrol diesel price and push LPG and kerosene towards market pricing in a phased manner through monthly increases.
The revenue loss on account of selling diesel, kerosene and LPG was as high as Rs 1.61 crore in 2012-13 but has since fallen 83 per cent to Rs 27,571 crore. The gross under-recovery (revenue loss) was Rs 7,830 crore for the six months ending September 30, 2016.
The revenue loss on account of selling diesel, kerosene and LPG was as high as Rs 1.61 crore in 2012-13 but has since fallen 83 per cent to Rs 27,571 crore. The gross under-recovery (revenue loss) was Rs 7,830 crore for the six months ending September 30, 2016.
“PSU upstream companies (ONGC and OIL) are likely to benefit from rise in crude oil prices as their net realisations would increase with no or minimal under-recovery burden up to the level of $60 a barrel, as per the current subsidy sharing formula. Private crude oil producers would directly gain from higher crude oil prices,” said K Ravinchandran, senior vice-president and head, corporate sector ratings, ICRA
The Opec decision has led to a spike in global crude oil prices by 8 per cent on Wednesday with benchmark Brent crude futures touching $54 a barrel. ICRA says the Indian government’s subsidy burden on account of kerosene and LPG is unlikely to shoot the budgetary estimate of Rs 27,000 crore.
“The impact of higher crude oil prices on the Indian government’s fiscal may be limited in FY2018 as well because gross underrecoveries would not increase significantly up to crude oil prices of $60-65 a barrel due to the ongoing regular small hike in prices of subsidised LPG and kerosene on a fortnightly/monthly basis. In terms of impact on foreign exchange outgo, the rise in crude oil prices along with recent depreciation in rupee against dollar are expected to increase net crude oil and petroleum products import bill of the country by $4 billion for crude oil prices of $55 for the rest four months in FY2017.
Globally, oil companies resorted to cut in investment leading to job losses. According to a May 2016 report of Houston-based Graves & Co, a total of 351,410 jobs were cut by the oil and gas production companies worldwide.
Unlike the earlier Petrotech conferences, where high crude oil price was the concern for India, this time it is the oil recession hit industry that will be deliberately the price volatility especially after hiatus on Opec cuts have now been broken.
