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Petrol prices have gone up sharply, but there may be some relief in sight for Indian consumers.
The worsening Euro zone debt crisis has already led to a cooling off of global crude oil prices due to demand ‘destruction'. Dated Brent crude oil prices have dipped by 15.6 per cent from their peak in February 2012 to a six-month low of $106.82 per barrel.
Output and demand
The Indian crude oil basket cost $117.6 per barrel during February, which moderated to $111 by May. The import basket is pegged to a mix of Oman/Dubai and dated Brent prices.
There are expectations of a further decline in Brent prices too. Current output levels outstrip demand, as conditions in Europe are weakening.
In addition, Saudi Arabia's Oil Minister has indicated that the Organisation of Petroleum Exporting Countries (OPEC) intends to drive prices down to around $100 per barrel in order to prop up demand. Inventory levels in the US have also reached record levels.
According to US Energy Information Administration data, the country's commercial crude oil inventories increased by 2.1 million barrels in the week ended May 11, 2012.
US inventory
At 381.6 million barrels, US crude oil inventories are above the upper limit of the average range for this time of year.
The counter-balancing factor today is restrictions on crude oil supplies from Iran, which could curtail global supplies.
As of now, the reduction in global prices will provide some relief to the country's oil refiners, who have been struggling to pay their bills on account of mounting under-recoveries on fuel sales. However, under-recoveries continue to be high especially on diesel, where no price hikes have yet been announced.
As per Petroleum Planning and Analysis Cell data, oil refiners' under-recovery on diesel stood at Rs 13.64 per litre as of May 16, 2012. Diesel accounts for the bulk of under-recoveries of oil companies. However, the full benefit of this correction has not been felt by Indian oil importers because of the weakness in the rupee.
Rupee weakness
With the rupee sliding by 12.51 per cent against the dollar, crude oil prices have dipped by just 3.3 per cent in rupee terms.
Nevertheless, if global crude oil prices continue to decline or if the rupee stabilises any time in the near future, Indian consumers can look forward to a downward revision of petrol prices.
> Arvind.jayaram@thehindu.co.in
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