It is just not the developments in Iraq that public sector oil companies will be monitoring this week. The rupee and monsoon patterns will also keep them equally busy as they have a bearing on fuel losses this fiscal.

While the Iraq crisis has already caused a spike in global crude prices to nearly $115/barrel, the next spoilsport could be a strong dollar which could stop the good run the rupee has had over the last few weeks.

The other area of concern is the possibility of deficient rains due to the El Nino effect which will impact hydro power generation. As homes across India begin coping with the harsh reality of blackouts and farmers clamour for power to meet their irrigation needs, there will be greater demand for generator sets fuelled by diesel.

Oil companies are losing just a little over ₹2/litre on diesel, but this gap could increase if the events in Iraq cause global crude prices to spin out of control. And if more diesel is needed for gensets, the trio of BPCL, HPCL and IOC will have their task cut out.

“We are hoping that there is no further delay in the rains and if crude gets back to levels of under $110 a barrel, it will be even better. This is going to be a crucial week for the three companies,” an oil industry official told Business Line .

Any crisis is enough for traders to have a field day and cause uncertainty in crude prices and this is precisely what is happening in Iraq. From India’s point of view, this could not have come at a worse time. The rupee was finally regaining some lost ground against the dollar and diesel losses had come to around ₹2/lt.

With the Government implementing monthly price hikes of 50 paise, these losses would have been completely wiped out by November.

It now remains to be seen how global crude prices move in the following weeks. IOC, HPCL and BPCL will be doubly relieved if the monsoons gather momentum and ensure that there is enough power generated across the country. This is the only way the Government can quickly hope to eliminate the diesel subsidy, which accounts for a significant part of losses incurred by the trio.

Cooking gas and kerosene are also part of the subsidy kitty, which led to overall losses of ₹1,60,000 crore in 2013-14. The compensation package came from the Government and upstream companies led by ONGC and Oil India. If diesel is deregulated this fiscal and (if) the rupee also holds firm, at least ₹60,000 crore fuel losses could be shaved off this fiscal.

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