If the average crude oil prices continue to remain at $ 100 per barrel in the coming months, the total under recoveries for the oil marketing companies (OMCs) will go up to Rs 98,000-crore in FY 12, a report by a brokerage firm IIFL said.

With the crude oil prices touching USD 100 per barrel mark in February, the under recoveries for FY 11 is expected to touch Rs 72,000-crore, the report said.

“Considering a situation that there will be no change in crude oil prices and that it would continue at an average of $ 100 per barrel, the total under recoveries for FY 12 would increase to Rs 98,000-crore,” India Infoline (IIFL) Research Analyst, Mr Prayesh Jain, said.

For the period April-December 2010, the gross under recoveries of OMCs were Rs 47,000-crore based on average crude oil price of $ 80 per barrel.

However, so far in Q4 FY11, crude oil prices have averaged at $ 101 per barrel, which would result in gross under recoveries of about Rs 25,000 for Q4 FY11, the report said.

The unrest in the Middle East and North African (MENA) countries could further push the crude prices up, Jain said.

The profitability and cash flows for OMCs will continue to be strained on account of uncertainty on future subsidy sharing pattern, he said.

“Predictability of earnings for oil marketing companies has always been a difficult proposition considering high degree of uncertainty on subsidy sharing mechanism. We expect the government to increase their sharing to 50 per cent for the current fiscal. A decision on subsidy sharing formula will result in better earnings visibility for oil marketing companies, which will enable them to plan their cash flows better,” Jain said.

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