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Richa Mishra

New Delhi, Oct 16 With international crude oil prices maintaining an unrelenting upward surge, the Government may have to consider more measures to compensate domestic oil marketing companies (OMCs).

Oil market analysts feel that the recent package doled out by the Government to bail out the state-owned OMCs may not be sufficient as they fell crude prices will remain strong during the winter months because of the control on supplies by the Organisation of Petroleum Exporting Countries (OPEC) and increased demand. The expectation is that crude would hover around the range of $75-$82 a barrel.

“If the current volatility in crude price continues, the recent package announced by the Government may not be enough to bail out the OMCs and the package may have to be enlarged,” analysts said.

While London’s Brent crude touched an intra-day high of $84.31 a barrel on Tuesday, the US crude (Nymex) touched an intra-day high of $87.97 per barrel. The Indian crude basket was at $78.88 a barrel on Monday, the highest so far this fiscal. The basket is a composition of total industry process of sweet (including indigenous) and sour crude oils and represents f.o.b. prices of average of Oman/Dubai crude oils for sour grade and Brent for sweet grate in the ratio of 59.8:40.2.

The factors driving the crude prices were the developments on the Turkey-Iraq border and the weak dollar attracting investors to commodities.

Speaking to Business Line, Mr S.V. Narasimhan, Indian Oil Corporation, Director Finance, said “the prices are expected to stay in the same range ($75-$82 a barrel) for some time”. He was, however, quick to point out that such high prices were unwarranted even if demand is high.

A section of analysts while not ruling out the possibility of crude touching $ 100 a barrel, feels that currently there was a lot of speculation in the market as financial liquidity was high leading to rise in demand, and supply was low. This spells bad news for domestic oil marketing companies which have to sell petroleum products at a controlled price, they said.

A senior Petroleum Ministry official said the Government may have to mount international diplomatic efforts and seek the intervention of OPEC and other producers so that measures are taken to bring down the prices to a sustainable level. For the domestic market, the Ministry had recently evolved a package of oil bonds, one-third of under-recoveries to be shared by the upstream oil companies, and continuation of subsidy schemes for kerosene and LPG through the budget for another three years from April 1, 2007. The retail prices were left untouched.

The Government has decided to issue oil bonds worth Rs 23,457.24 crore for the fiscal. Besides, the upstream companies — ONGC, GAIL and Oil India Ltd — are expected to bear 35 per cent (Rs 19,227.25 crore) of the total under-realisation of Rs 54,935 crore. The Government also provides about Rs 2,680 crore every year through the budget to subsidise cooking fuels.

Indian Oil Corporation is losing Rs 95 crore per day on sale of four petroleum products – kerosene, LPG, petrol and diesel. The under-recovery on sale of petrol was at Rs 3.90 per litre and on diesel Rs 6.22 per litre. The revenue loss suffered for selling LPG and kerosene below the cost price stood at Rs 174 per cylinder and Rs 16 per litre, respectively. However, the bottomlines of the oil companies was not severely impacted on this count during Q1 as the appreciating rupee came to their rescue. Their performance in the second quarter is also expected to be positive with the package announced recently for them.

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