Sharp $5 increase in crude price might hit retail prices next week

Indian Oil Corporation (IOC), the country's largest petroleum retailer, said the $5 a barrel increase in crude oil prices over the past few days would reflect in the retail price of petrol and diesel with a lag.

The company and Union minister of petroleum Dharmendra Pradhan denied any direction from the government on holding the retail price line.

Sanjiv Singh, chairman of IOC, said: "We take the average of the preceding 15 days; so, a daily spike does not reflect immediately." Petrol and diesel prices are likely to see an impact only next week if the increase continues to be high.

Singh said when prices change so substantially, inventory gains and losses play a big role. "Profitability for oil companies comes from cracks (the price differential between crude and its products). The crude oil price is not the only determinant," he told reporters on the sidelines of the International Energy Forum meet.

From $62 a barrel on Monday to $67.45 on Wednesday, the price of WTI crude rose 8.5 per cent in three trading sessions.

Prathamesh Mallya, chief analyst, non-agri commodities and currencies, Angel Commodities Broking, said: "This significant positive momentum in oil prices is a result of geopolitical tensions between the US and Syria, wherein the US has threatened to attack Syria with missiles for its use of chemical weapons to kill civilians."

He said all the uncertainty had since been factored into oil prices and a correction was due, as rising supplies from the US would check these. "We expect oil prices to correct towards $62 in the near term."

Singh said very low prices were not in the interest of the industry in the long term, since investment in the upstream sector (exploration and production) does not come if prices are too low. The benchmark Indian basket of crude had risen from a monthly average of $52.49 a barrel in April 2017 to $63.8 in March 2018.

Though the three government oil marketing companies - IOC, Bharat Petroleum Corporation and Hindustan Petroleum Corporation - are officialy free to set diesel and petrol prices, a Bloomberg report on Wednesday said the government had asked them to hold back retail prices by Re 1 a litre.