The Indian basket of crude oil prices has fallen to $56.01 a barrel, its lowest in three months, due to continued concerns over the Greek debt crisis and China’s accelerating stock market plunge.
The Greek crisis has strengthened the dollar against other currencies, making oil more expensive for non-US buyers. China is the world’s second largest consumer of crude oil.
Tuesday's extension of talks on Iran’s disputed nuclear programme to Friday helped the bearish sentiment. A deal would lead to the lifting of sanctions on Iran’s oil exports, allowing the country to sell more crude into an already-oversupplied global market.
The Indian basket of crude oil represents the average price of Oman and Dubai sour grade crude and the sweet Brent crude, processed in Indian refineries in the ratio of 72:28. It settled at $56.01 a barrel on Tuesday, the petroleum ministry said, the lowest since April 10, when global crude rates began recovering from historic lows.
Crude oil for August delivery has fallen by 12 per cent so far in July on the New York Mercantile Exchange. Brent crude for August delivery was trading at $57.21 a barrel, up 0.6 per cent at London’s ICE Futures exchange on Wednesday.
A declining crude price translates into lower underrecoveries for Indian oil marketing companies (OMCs), helping the government save on its huge petroleum subsidy bill. The gains are partly offset by the impact of a weakened rupee on the import bill of companies. After the deregulation of petrol in June 2010 and diesel in October 2014, only two petroleum products -- cooking gas or liquefied petroleum gas (LPG) and kerosene -- are still sold at a subsidy.
OMCs' underrecoveries on subsidised petro sales came down from Rs 139,869 crore in 2013-14 to Rs 72,314 crore in 2014-15, thanks to diesel deregulation and rollout of the Direct Benefits Transfer in LPG scheme. This financial year, the government is budgeting for a petroleum subsidy bill of Rs 30,000 crore, of Rs 22,000 crore on LPG and the rest on kerosene, based on an assumption of crude oil at $70 a barrel.
Analysts believe despite the weakness in crude prices, the recovery in Dubai crude over the past month will provide relief to exploration and production companies in the second quarter, whose margins had contracted significantly over the past year. "Recovery in Dubai crude to $61.3 a barrel in the April-June quarter will provide some support to the earnings and cash flows of upstream oil companies," said Vikas Halan, vice-president at global credit research and ratings agency Moody's Investors Service.
The latest edition of Moody's Asia Oil & Gas Quarterly says regional companies producing more oil or oil price-linked liquefied natural gas are likely to benefit from this recovery in Dubai crude.