Low oil prices good for importing countries like India: HPCL chairman

Hindustan Petroleum Corporation (HPCL) chairman M K Surana believes that the sharp fall in the international crude oil prices will be a positive for the Indian economy. In an exclusive interview with Shine Jacob, he talks about the current market situation, future of crude oil prices, and its impact on product prices in India. Edited excerpts

How do you see the international pricing scenario panning out?

This is not a pure demand-supply play. With the reduction in official selling price (OSP) by Saudi Arabia, I presume that others (oil producers) will follow. There is a possibility that Brent and Dubai differential may increase, but ultimately all oil benchmarks will be on downward spiral in the near future.

This is not a market-condition determined action. It depends on how long the two sides (Russia and Saudi Arabia) stick to their stand. The future will depend on the capacity of Saudi Arabia to sustain lower crude price. They would like to have a greater market share, too. There are only two ways for the oil producers: either you have to control the price or supply. If the fight is for lower price, then everybody will have a motivation to get a higher share of the market. 

How will refiners be impacted?

This should give better margins to the refiners in the coming months. To that extent, lower pricing is good for us. As the fall is very sharp and sudden, we may have issues related to inventories. Overall, pricing is advantageous for companies like HPCL.

What does this mean for the Indian economy?

If we see better margins, it is good for importing countries like India and its economy. As it is no longer a unipolar world, there is more possibility for the prices to remain low for some time. As a country that imports 85 per cent of crude, lower crude prices are definitely better for India. If it may start impacting the investment on upstream side, it may impact supply side in the longer run, too. I believe others may follow the Saudi route in crude market, otherwise they will become uncompetitive.  

During the first half of the year, oil prices were on a higher side. Do you expect this lower regime to compensate on the subsidy front?

Subsidized liquefied petroleum gas prices were increasing at a certain rate for some time. To that extent, lower crude prices may reduce the subsidy burden of the government. 

The product prices have their own way of getting determined by the market because of their own supply and demand situation, which is different from crude prices. On the product side, not much has changed in terms of fundamentals — including demand, supply, refining capacity and processing. The current disruption is because of crude prices, and there is a possibility that the cracks will improve in the near term. The product prices get determined by the cracks, but overall they will follow a low trajectory. 

Has the price fall due to virus turned out to be positive for refiners?

What happened in China is, to some extent, related to COVID-19, but (the fall in oil price) is independent in its own ways. The China thing is a demand-side issue. The decline in demand has increased inventory in the market and kept the prices low. Following this, the Organization of the Petroleum Exporting Countries (OPEC) had some line of thinking which has not been bought by others. With this, there is a fight in the market.