'Crude oil to keep rising, swelling OMC losses'

Crude oil prices may average $90 per barrel in 2011-12, up 15 per cent from the $77.97 per barrel in the current year, causing the gross underrecovery of oil marketing companies (OMCs) to swell to Rs 88,000 crore, said a Citigroup report.

For 2010-11, the underrecovery is estimated at Rs 65,000 crore.

“Earlier this year, the government deregulated petrol prices and partially raised prices of diesel and the cooking fuels. However, despite that, oil companies were making losses and no provisions have so far been made to compensate them,” the report said.

The 2010-11 and 2011-12 estimates incorporate the average price of the Indian basket of crude oil at $80/barrel and $90/barrel, respectively.

The OMCs — Indian Oil, Bharat Petroleum and Hindustan Petroleum — purchase crude oil at market rates but are required to sell diesel, kerosene and LPG at government-capped prices. These losses are usually compensated through a mix of cash and discounts from the upstream companies, ONGC, OIL and GAIL.

The OMCs do not incur any loss on sale of petrol now, as the government decontrolled petrol prices on June 25, on the Kirit Parekh committee’s recommendation to do so. It had also, in line with the Parekh suggestions, said the diesel price would be freed in due course, though this has not happened. Currently, the OMCs are losing Rs 4.11 per litre on diesel, Rs 16.88 per litre on kerosene and Rs 272 per cylinder on domestic LPG.

India imports 75 per cent of its crude oil requirements, with oil comprising 30 per cent of the total import bill. While higher oil prices undoubtedly will result in a higher current account deficit, the pressure will be a bit less than before due to hydro-carbon discoveries and higher petroleum exports, said the report.