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| Oil marketing firms: Crude realities |
| Shobhana Subramanian / Mumbai Jun 23, 2009, 00:06 IST |
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With crude oil prices up from around $48 dollars per barrel in mid-April and hovering around the $68 per barrel mark after having hit $71 per barrel, oil marketing companies stand to lose more money on retail sales.
 Under-recoveries, or the difference between the higher cost of production and the lower pump prices, say analysts, could be close to Rs 62,000 crore. Of course, the government is believed to be contemplating a price hike for petrol and diesel and industry watchers say the increases will be restricted to these fuels with prices of LPG and kerosene remaining untouched.
It’s no surprise that the oil and gas index has been underperforming the Sensex for over a month now because the Street is well aware that the second half of this month will see auto fuel marketing margins fall further. Merrill Lynch estimates that selling prices would need to be upped by between 12-18 per cent to bring auto fuel margins to normal levels and cut out the losses.
While margins for petrol have been in the negative since April 2009, they could slump further to nearly Rs 5 per litre. As for the margins for diesel, these were positive earlier but have been slipping. With the jump in crude oil prices, diesel margins will be sharply down. During the March 2009 quarter, retailers such as Indian Oil Corporation (IOC) enjoyed fairly good margins on petrol and diesel since prices of crude oil were lower by about 55 per cent year-on-year.
However, they lost money on kerosene and LPG. All the three oil marketing stocks IOC, BPCL and HPCL have underperformed the benchmark indices since the start of the year. With Goldman Sachs projecting a sharp jump in the price of crude oil to $95 per barrel by December 2010, these stocks are likely to remain subdued. Unless of course, the government decides to increase retail prices.
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