Petrol prices may be cut as global crude oil eases

Prices of the fuel have gone up 33% since being decontrolled last year

Easing global crude oil price ? $103 a barrel on Monday, down from an average $113 a barrel in the first quarter ? has nearly covered the losses that retailers IOC, HPCL and BPCL make on petrol, encouraging the government to indicate a price cut in the auto fuel. Since it was decontrolled in June last year, petrol prices have gone up 33%.

A senior executive in a leading oil marketing company said that if crude price declines to the extent of fetching a profit on its retail sale, it shall be passed on to the consumer, rather than covering the losses on other products on which the government exercises control.

Retailers are now making a loss of R247 crore (as on Tuesday) on the sale of diesel, LPG and kerosene below their cost. While diesel sales incur a loss of R6 a litre, kerosene is sold at a loss of R24 and LPG at a loss of R247 per cylinder.

Petroleum minister S Jaipal Reddy too has said fuel retailers will adjust prices downward in case of a sharp and stable decline in crude price. The minister emphasised the need for further softening of crude price for a retail price cut on petrol as oil firms have been absorbing some amount of losses assuming that prices will soften eventually.

IOC was suffering losses even after the steepest price increase of R5 per litre on petrol from May 14 midnight as it did not pass on the full cost of crude to the consumers then.

Crude price, which was at an average of $85 a barrel last fiscal, climbed to an average of $113 a barrel in the first quarter, upsetting the government?s hopes of containing the subsidy outgo. As oil marketing companies? losses mounted, the government was forced to raise diesel price by R3 per litre, LPG by R50 per cylinder and kerosene by R2 per litre in addition to cutting customs and excise duties on crude oil and products last month, sacrificing R49,000 crore in revenue. However, the credit rating downgrade of the US last week, triggered fears of a double dip recession in the American economy and brought down price of crude to $103 .

For this financial year, the government has allocated an oil subsidy of R23,640 crore, as against last fiscal?s revised estimate of R38,386 crore, which includes R14,000 crore for the losses made in the last quarter of 2009-10 and the first three quarters of 2010-11.

The government has also sanctioned another R 20,000 crore, which raised the government?s total oil subsidy for the last fiscal to R44,000 crore, which met more than half of the losses made by retailers. About 33-38% of their total losses are met by upstream firms like ONGC, Oil India and Gail India.