Diesel can be market-priced by September as crude goes under $100 (Roundup)

With international crude oil prices dropping below the $100 a barrel-mark last Friday, motorists can look forward to similar cuts in petrol rates like that around Rs.2 a litre granted on Independence Day.

With Brent crude price falling to its lowest level since June 2013 at around $101 a barrel, oil marketing companies are expected to stop making losses after September.

With the losses of state-run oil marketers on diesel sales below cost falling to under a rupee per litre, brokerage firm Goldman Sachs Tuesday estimated the monthly price hikes would end after September assuming oil prices remain around the current $100 level.

Estimating diesel under-recoveries, or losses, to fall to 30 paise a litre after the price hike on September, Goldman Sachs said in a report: "This implies we could effectively be done with the monthly cycle of diesel price increases in next two months and diesel will be market-priced."

In January 2013, the government allowed oil marketing companies (OMCs) to monthly raise diesel rates in small doses of 40-50 paise a litre towards wiping out losses.

Since then, rates have cumulatively risen by Rs.11.24 per litre in 18 instalments.

OMCs, effective Aug 16, are incurring combined daily under-recovery of about Rs.230 crore on the sale of diesel, PDS kerosene and domestic LPG.

The petroleum ministry's Planning and Analysis Cell still shows a diesel subsidy of around Rs.1.78 a litre. This, however, is because it takes the average of prices over a few days.

Meanwhile, international crude prices hovered near 14-month lows of $100 a barrel as worries over conflict in Iraq eased, and as higher Libyan oil output added to ample supplies coupled with weak demand. Price of Indian basket on Monday decreased to $100.04 per barrel.

The basket of 12 crude oils of the Organisation of Petroleum Exporting Countries (OPEC) stood at $99.42 a barrel Monday, compared to $99.94 last Friday, according to the OPEC Secretariat.

"OPEC countries will take action if oil goes below $100 because they won't be able to maintain their budgets," said Yusuke Seta, a commodity sales manager at Newedge, Japan.