Boiling crude dry up chance of price cuts from oil marketing companies

Price of Indian crude basket hits 14-month high of $93.5 on September 21

With prices of crude oil hitting new highs, there is little chance that the oil marketing companies (OMCs) will reduce pump prices anytime soon, Petroleum and Natural Gas Ministry officials hinted. 

Over the past few months, the government has called for OMCs to reduce prices. But the oil giants have held back, pointing towards their accumulated losses. This was due to under-recoveries or the difference between the retail selling price and the international petrol, diesel, and liquefied petroleum gas rate. 

That has again become a concern. “OMCs have reported that the under-recovery in diesel has currently crossed $10 per barrel," an official said.

The price of the Indian basket of crude oil hit a 14-month high at $93.5 per barrel on 21 September. The Indian basket of crude oil represents a derived basket comprising sour grade (Oman and Dubai average) and sweet grade (Dated Brent) of crude oil processed in Indian refineries in the ratio of 75.6 to 24.3. The prices are the average daily prices of the respective months.

Last week, Brent crude prices touched $95 per barrel for the first time in 2023 as Saudi Arabia and Russia extended combined supply cuts of 1.3 million barrels per day (bpd) to the end of the year.

Analysts expect prices to soon climb beyond $100 as Russia, over the weekend, imposed an indefinite ban on the export of diesel and petrol to all countries other than four Central Asian allies. Belarus, Kazakhstan, Armenia, and Kyrgyzstan are members of the Moscow-led Eurasian Economic Union. Officials said since India imports crude oil from Russia, it won't be affected from these measures.

For India, every $1 per barrel increase in crude oil prices will impact its current account deficit by around $1 billion.

India is the third-largest oil consumer in the world, and the country met 87.4 per cent of its crude oil demand in 2022-23, up from 85.5 per cent in 2021-22.

Cumulative losses

Public sector OMCs have reported a cumulative profit of Rs 1,138 crore in FY23, drastically down from Rs 39,355 crore in the financial year 2021-2022, official figures show. This drop has been blamed on a freeze in retail prices of petrol and diesel in 2022 despite a steep rise in crude prices due to production cuts and the war in Ukraine. 

Meanwhile, pump prices were last revised upwards on April 6, 2022. In May 2022, a steep cut in central excise duty had reduced prices further. At present, petrol and diesel cost Rs 96.72 and Rs 89.62 per litre respectively, in Delhi.

As a result, a further cut in excise duty remains on the table, officials said.

The OMCs have earlier sought compensation to make up for losses. With regards to the one-time grants for OMCs to shore up their finances, officials said only one proposal has been discussed so far. 

“This pertains to compensating the OMCs for the Rs 200 reduction in LPG prices announced by the government last month. It's still under discussion,” another official said.

A similar one-time grant of Rs 22,000 crore had been approved in October 2022 as well.