Govt doubles profit on diesel sales as crude prices plunge

After years of incurring huge losses by selling diesel below cost, the government is finally making a profit on its sales at a rate that is doubling per fortnight even as international crude rates plunge.

"The over-recovery (or profit) on High Speed Diesel (HSD) applicable for the 2nd fortnight of October effective from 16.10.2014 (Thursday) is now Rs 3.56 per litre. The over-recovery was Rs 1.90 per litre during 1st fortnight of October 2014," the Petroleum Ministry said in a release in the national capital.

The daily international crude oil price of the domestic basket dropped nearly $4 a barrel (bbl) on Wednesday at US $83.85, against US $87.46 on Tuesday, the statement added.

Petrol rates were cut effective Wednesday by Re 1 a litre, excluding local taxes, following a reduction of 54 paise made on Oct 1.

After accounting for local sales tax, petrol per litre will cost in Rs 66.65 in Delhi, Rs 74.46 in Mumbai, Rs 74.21 in Kolkata and Rs 69.59 in Chennai.

Diesel prices were earlier being raised monthly by 50 paise a litre in line with the government's January 2013 decision, while September was the first month that passed without a hike.

Rates have cumulatively risen by Rs 11.81 per litre in 19 instalments since January 2013.

Diesel currently costs Rs 58.97 in Delhi, Rs 67.26 in Mumbai, Rs 63.81 in Kolkata and Rs 62.92 in Chennai.

While the government is keen to pass on the benefit of cheaper oil to consumers, it couldn't free diesel prices because of the assembly elections, an official source told IANS.

Lowering crude oil prices is the result of sluggish demand from major importers like China coupled with a rise in output from otherwise strife-torn Libya, as well as the easing of concerns over supplies from Iraq where various factions are engaged in military combat.

Global benchmark Brent crude oil futures have fallen steadily for almost four months, dropping 23 per cent from a June high of over US $115 a barrel as fears of a Mideast supply disruption ebbed, US shale production boomed and demand from Europe and China showed signs of flagging, the ministry said Monday.

US crude stockpiles added five million barrels to 361.7 million barrels last week, according to data from the Energy Information Administration (EIA).

Crude production from the Organisation of Petroleum Exporting Countries (OPEC) averaged 30.47 million barrels per day, an increase of 402,000 barrels from September, according to the OPEC monthly report released last week.

The OPEC basket price fell more than US $4 last week to US $89.34, marking its fourth straight weekly drop, according to figures by the Venezuelan government.

On Sunday, Gulf-nation Kuwait's Petroleum Minister Ali al-Omair said output cuts by OPEC countries would do little to prop up prices in the face of higher production from Russia and the United States.

Brent crude has averaged around US $103 since 2010, trading mostly between US $100 and US $120.