Falling rupee pushes Indian crude oil basket to a record high

Even as the rupee keeps falling to touch new lows, the Indian crude oil basket has hit an all-time high in rupee terms. It was at Rs 6,706.23 per barrel on Friday — $108.48 per barrel in dollar terms when the exchange rate was at Rs 61.82.

The rupee breached the 63-mark on Monday. Experts expect the currency to fall even further on Tuesday.

“It is not because of international crude oil prices, but the fall in rupee that has resulted in this all-time high. It was in 2008 when the international prices were higher that we saw such a phenomenon where the prices were seen higher in rupee terms. This will have a huge impact on our deficit, inflation and also under recoveries of public sector undertakings,” said Kalpana Jain, senior director, Deloitte India. Things are likely to worsen with Brent crude touching a two-year high of $110.51 a barrel on Monday. Brent for sweet grade has a 31.8 per cent weight in the Indian basket.

According to a Motilal Oswal report, Brent crude averaged $108 per barrel led by higher demand, low OPEC spare capacity and improved 2013 outlook. Rupee depreciation took Brent to an all-time high of Rs 6,436 a barrel, it added.

The benchmark Indian basket, which also gives Oman and Dubai sour grades a weight of 68.2 per cent, had seen an all-time high on monthly average in July 2008, when it touched $132 a barrel in dollar terms. However, in terms of yearly average, it was in 2011-12 that the domestic basket scaled a new high of $111.89 per barrel, which came down to $107.97 per barrel.

Although the prices in terms of dollar were on expected lines this financial year with $101.58 in April, $101.14 in May, $101.15 in June and $104.93 in July, it was the rupee that played the spoilsport because of its steep slide.

 

According to the petroleum ministry’s estimates, for every rupee fall against the dollar, the under-recovery will increase by Rs 8,000 crore, while every dollar increase in crude oil prices would add Rs 4,000 crore. Hence, the fall of rupee may also push the overall under recovery figures above Rs 1,50,000 crore. Early this financial year, the finance ministry had pegged this year’s under recovery to be around Rs 80,000 crore, when the exchange rate was around Rs 54.

 

According to Motilal Oswal, over the last 3 months, oil marketing companies and ONGC/OINL has underperformed Sensex by 30-36% and 11-16% respectively. “The underperformance can be partly justified by the newly emerged concerns like Rupee depreciation, increase in under recoveries and uncertainty on the refinery transfer pricing (export/trade parity),” it added.

 

On August 16, the under-recovery on diesel has hit a five-month high of Rs 10.22 per litre, while that of kerosene and domestic LPG — calculated on a monthly basis — stood at Rs 33.54 per litre and Rs 412 per cylinder. OMCs, effective from August 16, are incurring a combined daily under-recovery of about Rs 389 crore on the sale of diesel, kerosene and domestic LPG, compared to Rs 379 crore during the previous fortnight.