Diesel can be market-priced by Sep as crude goes under $100

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SME Times News Bureau | 20 Aug, 2014
With international crude oil prices dropping below the USD 100 a barrel-mark last Friday, motorists can look forward to similar cuts in petrol rates like that around Rs.2 a litre granted on Independence Day.

With Brent crude price falling to its lowest level since June 2013 at around USD 101 a barrel, oil marketing companies are expected to stop making losses after September.

With the losses of state-run oil marketers on diesel sales below cost falling to under a rupee per litre, brokerage firm Goldman Sachs Tuesday estimated the monthly price hikes would end after September assuming oil prices remain around the current USD 100 level.

Estimating diesel under-recoveries, or losses, to fall to 30 paise a litre after the price hike on September, Goldman Sachs said in a report: "This implies we could effectively be done with the monthly cycle of diesel price increases in next two months and diesel will be market-priced."

In January 2013, the government allowed oil marketing companies (OMCs) to monthly raise diesel rates in small doses of 40-50 paise a litre towards wiping out losses.

Since then, rates have cumulatively risen by Rs.11.24 per litre in 18 instalments.

OMCs, effective Aug 16, are incurring combined daily under-recovery of about Rs.230 crore on the sale of diesel, PDS kerosene and domestic LPG.

The petroleum ministry's Planning and Analysis Cell still shows a diesel subsidy of around Rs.1.78 a litre. This, however, is because it takes the average of prices over a few days.

Meanwhile, international crude prices hovered near 14-month lows of USD 100 a barrel as worries over conflict in Iraq eased, and as higher Libyan oil output added to ample supplies coupled with weak demand. Price of Indian basket on Monday decreased to USD 100.04 per barrel.

The basket of 12 crude oils of the Organisation of Petroleum Exporting Countries (OPEC) stood at USD 99.42 a barrel Monday, compared to USD 99.94 last Friday, according to the OPEC Secretariat.

"OPEC countries will take action if oil goes below USD 100 because they won't be able to maintain their budgets," said Yusuke Seta, a commodity sales manager at Newedge, Japan.