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Murali Gopalan
Richa Mishra

Mumbai/New Delhi, June 30 The power and water shortage across the country is not the best of news to oil refiners who are worried that this could lead to excessive diesel consumption at a time when they are already making losses on sale of the fuel.

The trio of IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation had little to complain about at the beginning of this calendar when they were making profits on diesel.

Over the last few weeks, the wheel has come full circle and they are beginning to post losses instead.

“From our projections, losses on diesel are already close to Rs 4/litre and will only grow with more demand especially in the non-transport sector,” an oil industry executive told Business Line. Ideally, diesel is meant for vehicles at retail outlets but this is seldom the case in a country where blackouts are the order of the day.

Even today, diesel is the best bet for generator sets in farms, factories, construction equipment and even large residential complexes. It is preferred to furnace oil since access is a lot easier thanks to a plethora of retail outlets. In addition, diesel can be bought in small quantities too which gives it an advantage (over furnace oil).

There is a degree of concern that should the monsoons continue to play truant, farmers would get into a frenzied activity of digging borewells which will only translate into use of more diesel to fuel the gensets.

The only silver lining in the cloud is that, quite unlike 2008-09, there are no issues relating to shortage of diesel. Thanks to private sector refiners such as Reliance Industries and Essar Oil (in addition to Mangalore Refineries and Petrochemicals owned by Oil and Natural Gas Corporation) availability is no longer an issue.

The bigger concern relates to the not-so-welcome prospects of the refiners incurring greater losses on diesel. Last fiscal saw IOC, HPCL and BPCL lose nearly Rs 25/litre on diesel in a brief period when the oil price crisis had gone out of control.

There is no such panic this time around but growing anxiety that diesel consumption could rise at a time when it typically dips, thanks to the monsoons.

In fact, recent data shows that domestic diesel sales fell 1.3 per cent in May against the same month last year, while petrol consumption was up nearly 5 per cent. After a long while, diesel showed negative growth mainly due to the high base month impact of May 2008.

That period was an unusual month for petrol and diesel sales due to speculation on a likely price increase with the high crude price spiral globally. This speculation led to high inventories by dealers which, in turn, artificially pushed up sales in May 2008.

Hence, while growth figures for May are negative (due to the high base month impact), diesel consumption at 4.748 million tonnes (4.808 million tonnes) was otherwise normal and has not fallen in absolute terms.

Another reason for this was due to a continuous decline in the industrial sector’s use as diesel-direct sales showed negative growth of 4.7 per cent in May.

It was the sixth successive month when industrial sales of diesel showed negative growth, coinciding with the onset of the economic recession in the second half of 2008-09. While economics dictated the pace of diesel consumption so far, the weather patterns could change the pattern, fear experts.

However, the consumption trend for diesel seems to be changing in June, with the eastern region recording a 45 per cent growth, with Bihar alone registering nearly 65 per cent.

More Stories on : Water | Power | Outlook | Petroleum | Bharat Petroleum Corporation Ltd | Hindustan Petroleum Corporation Ltd

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