Indian crude oil basket at $87.46 a bbl as Brent cools to 4-year low

Brent crude oil for November delivery on Wednesday dropped to $83.37, the lowest intra-day level since November 2010, before recovering a little to $83.95 (at 12:30 am IST). The global declining trend has also brought down the price of crude oil that India imports, to $87.46 a barrel, and is set to reduce the government's oil subsidy bill for this financial year. There also are hopes that the retail price of diesel would be lowered shortly.

A day before, the oil price had seen its sharpest daily fall in more than three years after the Organization of the Petroleum Exporting Countries (Opec) slashed its forecast for global oil demand. Saudi Arabia, one of the world's biggest crude oil producers, has been resisting a cut in Opec production to arrest the fall.

In India, the government controls the prices of diesel, domestic cooking gas and kerosene. The losses incurred by oil firms for selling these products below market cost are made good by way of cash subsidy from the government and discounts from upstream oil producers like ONGC.

According to latest data, the Indian basket of crude oil has fallen to $87.46 a barrel, almost $10 lower than the average so far this year. The average for the Indian basket had stood at $105 a barrel last year, when the government and its companies had to bear a subsidy burden of Rs 1,39,869 crore. With a drop in global price, this is likely to fall to Rs 86,080 crore this year.

However, Finance Secretary Arvind Mayaram on Wednesday sounded a note of caution amid all-round cheer over falling prices. He said: "We should not be too optimistic... we have to see how oil prices change going forward. Though we believe a softening in prices is in our interest, there also are winter demand and geopolitical situations (to consider)."

At present, while petrol is priced to market, oil companies have been making a profit of a little less than Rs 3 a litre for the past month; the government and oil firms continue to bear more than half the prices of cooking gas and kerosene. On diesel, too, the oil firms had been losing as much as Rs 6.59 a litre until the fortnight beginning May 1 this year (the underrecovery stood at Rs 16.10 a litre in April 2011).

With a decline in global crude oil prices, the three state-run oil marketing companies - Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation - are also expected to lower the retail price of diesel by about Rs 2.50 a litre after state elections in Haryana and Maharashtra are over.