Just when it seemed that oil retailers like BPCL, HPCL and IOC would end 2008-09 on a better note than expected, the government has thrown a spanner in the works.
With crude prices coming off sharply by close to 70 per cent, from the peak of $147 in July this year, oil marketers should have benefited because the selling price of products hadn’t been lowered. But with the cut in petrol and diesel prices by Rs 5 and Rs 2, respectively, all three firms are almost certain to end the year in the red. Already, in the six months to September 2008, combined losses, for the three were Rs 14,431 crore even though retail prices for petrol and diesel were raised in June.
The firms continue to sell petrol, diesel, kerosene and LPG at prices that are way below the cost of production. Some of the losses that they incur are made good by exploration firms such as ONGC.
Moreover, the government also chips in by issuing oil bonds –the entire amount flowing directly to the top line of these firms.
But even these measures can’t take care of the entire loss. It’s not just the lower profit margins on diesel or petrol that are hurting oil marketers, margins on aviation turbine fuel ( ATF) too have come off. And should crude oil prices move up globally, which seems very likely, that too would hurt.
It’s not just lower prices that are worrying analysts; they believe volumes for products such as ATF, could be lower given that air passenger traffic has been falling. Already, the demand for diesel is believed to be lower than estimated.
Lower volumes will hurt revenues which have risen a strong 47-50 per cent in the first half of 2008-09, unless the government helps out with more oil bonds.
With crude oil prices coming off, BPCL, HPCL and IOC have out-performed the market in the last six months. However, without some assurance from the government that it will bail them out, that trend could now reverse.
