Indian crude at $99, oil firms relieved

CHEAPER CRUDE OIL WEAKENS RUPEE EVEN AS CORE SECTOR GROWTH REVIVES

The basket of crude oil that Indian refiners buy fell below $100 per barrel on Tuesday, the latest day for which data are available, nearly five months after it first breached the three-digit mark.

This will allow the country’s oil marketing companies to make profits on a third of their petrol sales, for the first time in 13 months.

More importantly, the oil ministry is considering a proposal to reduce diesel prices if the crude oil prices fall below $85 per barrel to control the 13-year high inflation with an eye on elections, said two senior officials in the petroleum ministry.

Diesel is used largely by the transport sector and high diesel prices have a cascading effect on general price levels as 78 per cent of goods are transported by road.

“That’s the thinking. Below $85, the government may actively start looking in terms of cutting diesel prices,” confirmed an oil ministry official who did not want to be named as fuel pricing needs approval of the Union Cabinet. However, petrol prices may not be cut, the same official said.

Meanwhile, the 13-member Organisation of Petroleum Exporting Countries (Opec), which supplies 40 per cent of the world’s oil, decided it would pump half a million barrels of oil less from this month.

Oil prices rose by over 1 per cent to $104.30 a barrel immediately after Opec took the decision, but later fell to yesterday’s level of $103.25 a barrel after the International Energy Agency (IEA) cut oil demand projections for the next 15 months.

Analysts say that lower demand for oil in the developed countries of the US and Europe due to slower economic growth will keep prices lower. Mumbai-based Khandwala Securities’ Vinay Nair says the projection is that prices will fall to $65-70 per barrel in the next three years and will average $105 per barrel this year.

Meanwhile, the three oil marketing companies — Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) — will be recording profits on sales of premium petrol for the first time since August last year. Premium petrol makes up around 30 per cent of these companies’ total sales.
 

OIL SLIPS BACK
PROJECTED UNDER-REALISATION OF OIL COMPANIES (Rs/litre)
	Sep. 1	Currently
Petrol	6.31	3.00
Diesel	13.69	10.00
Indian basket*	110.16	99.00
*$ per barrel
PRICES OF NORMAL AND BRANDED PETROL IN DELHI (Rs/litre)
The Brand	Branded petrol	Normal petrol
Xtra Premium (IOC)	54.56	50.56
Speed (BPCL)	54.8	50.56
Power (HPCL)	54.56	50.56

“If prices fall below $90 per barrel, we will start making profits on normal petrol as well,” said a senior IOC official. Under-realisations on petrol account for around 5 per cent of the total under-realisations of these companies. Diesel, which will continue to make a loss of Rs 10 per litre, accounts for over half the under-realisations.

The premium petrol sold by IOC, BPCL and HPCL is around Rs 4 per litre more expensive than the normal petrol. At below $100 per barrel price of the Indian basket of crude oil, the companies are losing less than Rs 3 on every litre of normal petrol they sell. These companies are thus making around Re 1 for every litre of premium petrol they are currently selling.

The 30 per cent fall in the prices of the Indian crude oil basket over the last couple of months has resulted in the annual under-realisation on fuel sales of IOC, BPCL and HPCL falling 38 per cent to around Rs 1,50,000 crore from the Rs 2,45,000 crore revenue loss projected in June, when oil prices were above $132 per barrel.

IOC, BPCL and HPCL, however, are not celebrating yet. They say the impact of lower oil prices is not very significant as the value of the rupee against the dollar has depreciated by 12 per cent since April this year. The cost of buying crude oil increases as the value of the rupee falls against the dollar. This in turn increases the cost of producing fuels, thus putting upward pressure on the under-realisations.