More relief likely from falling crude oil prices

OMCs, Essar Oil may cut petrol & diesel prices by Rs 2.5/l & Rs 3/l, respectively

Falling crude oil prices could bring some relief to users, with public and private oil marketing companies (OMCs) planning to cut retail fuel prices. While government-controlled OMCs could reduce the petrol price by around Rs 2.50 a litre, Essar Oil is planning to reduce diesel at its retail outlets by little over Rs 3 a litre.

The current drop would bring the gap between fuel sold at Essar Oil's retail outlets and public sector retail outlets down by Rs 3 a litre. At present, diesel at an Essar retail outlet costs Rs 6.50 a litre more than it would at any public sector retail outlet. "Diesel prices at our outlets could drop heavily from May 1," said an Essar executive who did not want to be named. An Essar Oil spokesperson declined to comment.

A senior OMC official said, "If international crude oil prices continue to slide, with the rupee strengthening against the dollar, petrol prices could see some let-up in May." Oil companies review retail oil prices on the 15th and 30th of every month.

Since the beginning of March, the price of petrol has come down by Rs 4.65 a litre, to a little over Rs 66 in Delhi. The differential between petrol and diesel prices is still high, at Rs 19.37, though OMCs have raised the diesel price thrice since the government decided to decontrol the fuel in a phased manner this January. The price was previously increased by 45 paise a litre on March 22. With Karnataka elections due next month and Parliament in session, the government informally asked the companies to pause.

Despite the falling crude oil prices, the revenue loss on diesel for OMCs is still over Rs 4 a litre. In the case of PDS Kerosene and domestic LPG, under-recoveries for April remain at Rs 30.49 a litre and Rs 434.52 a cylinder, respectively.

From April 16, the OMCs incur a daily under-recovery of Rs 348 crore on the sale of diesel, PDS kerosene and domestic LPG.

For April so far, the benchmark Indian crude oil basket averaged $101.60 a barrel against the March average of $106.45. It closed at $100.64 last week.

Brent has a 31.8 per cent weight in the Indian basket, with Dubai-Oman crude oils constituting 68.2 per cent.

"Every dollar decrease in the crude oil price, on an average, brings down the price of products by 40p. But currency depreciation sees an increase of 78-80 paise in the desired price of petrol and diesel for every rupee fall against the dollar," P K Goyal, director (finance), Indian Oil Corporation had earlier told Business Standard.

In the past seven years, the petroleum subsidy has more than doubled. Though the government had budgeted only Rs 40,000 crore in petroleum subsidy in 2012-13, the gross subsidy for the sector is estimated to be Rs 155,000 crore, of which Rs 96,880 crore is already on government shoulders.

Phased decontrol of diesel prices and capping of subsidised LPG cylinders is likely to reduce the petroleum subsidy this year. The government has budgeted a 33 per cent reduction at Rs 65,000 crore for 2013-14 but the estimates invariably went awry in recent years.

CRUDE CONCERN

* Revenue loss on diesel for oil marketing companies is still over Rs 4/litre

* Petrol price since March has come down by Rs 4.65/litre

* No revenue loss on petrol

* Indian crude oil basket averaged at $101.60/bbl for April against $106.4/bbl for March

* Differential between petrol and diesel price still high at Rs 19.37/litre