Indian basket crude prices drop below $100 mark

Profitability of upstream companies is also expected to improve

Indian basket crude oil prices fell below the psychological $100 mark to $99.28 a barrel yesterday. It is expected to fall further when the government releases on Tuesday’s closing price tomorrow.  

It is almost after a year that Indian basket prices have dropped below $100. It went as low as $89.19 a barrel in June 2012.

On a monthly basis, however, the price figures of Indian basket crude grew 12.63 per cent to $106.45 in March 2013, as compared to $94.51 in June 2012, which was a 16-month low during that time. Before that, it was in January 2011 that the monthly crude prices featured below the $100 mark, at $93.87.  

Brent crude on Tuesday fell below $100 a barrel for the first time since July 2012 on signs that global economic growth would slow, curbing fuel use. West Texas Intermediate (WTI) oil too slipped to a four-month low on speculation that US stockpiles rose, a Bloomberg report said. According to reports, Brent futures touched $98 a barrel, while WTI dropped to the lowest intra-day price since December 14.

“The recent plunge in oil prices is positive for India as it will lead to lower under-recoveries and also reduce the import bill. Overall, underrecoveries are expected to halve to Rs 70,000-80,000 crore in 2013-14, as against an estimate of Rs 1,50,000-1,60,000 crore in 2012-13,” a CRISIL Research report said.

Falling global prices have seen the revenue loss of oil marketing companies (OMCs) constantly coming down. The revenue loss on sale of diesel now stands at of Rs 6.48 a litre, kerosene at Rs 30.49 a litre and liquefied petroleum gas at Rs 433 a cylinder. “The decline in underrecoveries will lower working capital requirements of OMCs (IOC, BPCL and HPCL). This would lead to an improvement in their profitability and liquidity position, led by better cash flows and lower reliance on short-term loans to fund working capital requirements. We expect OMCs’ interest cost to decrease by Rs 2,500-3,000 crore in 2013-14, which is close to half of their net profit in 2011-12,” the CRISIL report added.

Profitability of upstream companies (ONGC, Oil India and GAIL) is also expected to improve, as their share in the underrecovery burden will decline to Rs 25,000-35,000 crore in 2013-14, from an estimated Rs 50,000-60,000 crore in 2012-13, the report said.