We'll see if oil prices can be cut further: Chidambaram

With global crude oil prices falling, more price cuts seem likely.

Home Minister P Chidambaram today said the government would see if it was possible to further reduce the prices of petrol and diesel due to lower global crude oil prices.

Chidambaram was speaking in the Rajya Sabha after the government informed both Houses of Parliament that the former finance minister would assist Prime Minister Manmohan Singh in running the finance ministry during the session. Singh currently heads the finance ministry.

“We will watch petrol and diesel prices to see if further (price) cuts are possible,” Chidambaram said.

Cutting fuel prices will help the government lower the already sliding rate of inflation. Lower inflation will give the Reserve Bank of India (RBI) room to further cut interest rates in a bid to boost the slowing economy. The inflation rate for the week ended November 28 fell to 8 per cent from a record high of almost 13 per cent in August this year.

Sagging economies around the world pulled down average oil prices 9 per cent in the first fortnight of this month, compared with the second fortnight of November. This resulted in state-owned oil refiners like Indian Oil Corporation (IOC) almost wiping out their losses from the reduction in fuel prices earlier this month.

The oil companies revise their under-realisations on petrol and diesel every fortnight and those on kerosene and cooking gas every month.

IOC, which supplies over half the fuel the country consumes, is currently losing around Rs 6 crore per day as it continues to sell kerosene and cooking gas for less than the production costs.

The company is currently making a profit of Rs 11.48 on every litre of petrol it sells and Rs 2.92 per litre of diesel. These two products account for 47 per cent of the total sales of these companies.

IOC, along with Bharat Petroleum and Hindustan Petroleum, is however, still making losses on kerosene and cooking gas sales.

“The losses on these two products outstrip the gains from petrol and diesel,” said a senior IOC official. Kerosene and cooking gas account for 16 per cent of the total sales of the oil companies.

Officials in these companies say that if oil prices remain around $40 per barrel over the next fortnight, they may break even on kerosene and cooking gas. “The rupee is not depreciating further, and if oil prices are favourable, we may start making profits on all fuels sales,” said an official of Hindustan Petroleum, which meets around a fourth of the country’s fuel demand.

The average value of the rupee appreciated by 1 per cent to 49.35 against the dollar in the first fortnight of this month, compared with 49.85 in the last fortnight of November. An appreciation in the value of the rupee against the US currency reduces under-realisations as oil companies pay for crude oil in dollars.