Falling global crude prices to help oil PSUs fare better

With the price of the Indian basket of crude oil imports steadily coming down to $95.3 a barrel from a high of $115 a barrel in mid-June and diesel sales also turning profitable, the public sector oil companies are headed for a better performance during the current fiscal.

The country's oil marketing companies - Indian Oil, Bharat Petroleum and Hindustan Petroleum - import as much as 79 per cent of their crude oil requirement which accounts for roughly 95 per cent of the cost of producing petroleum products.

The decline in international prices of oil also leads to an easing of the subsidy burden of the government and a reduction in the country's import bill. This strengthens the macroeconomic fundamentals of the country as a lower subsidy burden makes it easier to curtail the fiscal deficit and a decline in imports reduces the current account deficit which in turn strengthens the rupee vis--vis the dollar.

The oil companies, which were until recently selling diesel at a subsidised price are now raking in an extra Rs 1.90 a litre that is above the international market price and are, therefore, in a position to reduce the price of the fuel.

A senior petroleum ministry official told Mail Today that the decision would be taken "at the level of the Prime Minister as the issue is being considered in conjunction with the deregulation of diesel." The erstwhile UPA government had allowed the oil companies to raise the price of diesel by small doses of 50 paise a litre every month to gradually reduce their under-recoveries as the fuel was being sold at a subsidised price. This has now been achieved and the gap between diesel and petrol prices which at one time was around Rs 25 per litre has narrowed to less than Rs 10.

The sharp difference in the price of the two fuels also had a cascading effect on the auto industry with the sale of diesel cars shooting up at the cost of petrol models.

Consequently, the reduction in the price gap between the two fuels has also helped to correct this skewed dieselisation of the economy.

While the refinery gate price of petrol and diesel is more or less the same there is a huge difference on the taxes levied on the two fuels which also accounts for the price difference. The current retail price of petrol in Delhi is Rs 67.86 per litre while that of diesel is Rs 58.97.

Petrol has been traditionally viewed by the government as a rich man's fuel while diesel is a politically sensitive fuel used in the farm sector to run tractors and water pumping sets. It is also used for running trucks and buses that serve public transport needs.

A senior petroleum ministry official said the decline in oil prices will make it easier to go in for deregulation as the step will start by cutting prices. A Cabinet note has already been prepared on the subject, he added. Oil companies calculate the retail selling price of petrol and diesel on the 1st and 16th of every month based on average international benchmark price and rupee-dollar exchange rate.