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No relief in sight for oil companies

This article was posted on Apr 7, 2010 and is filed under Market News

The surge in crude oil prices is projected to more than double the losses of oil marketing companies to Rs 98,000 crore and force the government to seriously consider a hike in petrol and diesel prices.

Upstream companies such as ONGC will also take a hit due to the strengthening of the rupee, besides sharing the burden of rising oil subsidies.

International crude oil prices are around $87 a barrel, an 18-month high. However, this is still a long way from the record high of $147 in July 2008. The Indian basket of crude oil is at over $83.

“We estimate that under-recoveries of oil marketing companies will be to the tune of Rs 98,000 crore, given that the average crude oil price is $80 per barrel. A part of this burden will be absorbed by upstream oil companies. However, it will not be possible for the government to absorb the balance. Therefore, an increase in petrol and diesel prices has to be seriously considered,” S Sundareshan, petroleum and natural gas secretary, told Business Standard.

Sundareshan said the ministry considered an exchange rate of Rs 45.70 per dollar while calculating the losses. The rupee closed at Rs 44.45 to a dollar today.

Oil marketing companies are estimated to have closed 2009-10 with gross under-recoveries of Rs 45,000 crore (with Indian crude oil basket averaging $69.76 a barrel).

SK Joshi, director (finance) at Bharat Petroleum Corporation, said every dollar increase in crude oil price meant an additional burden of Rs 3,000 crore annually for oil marketing companies. He said an appreciation of Re 1 against the dollar meant an annual saving of Rs 7,000 crore for the industry. For the current fortnight, oil marketing companies are estimated to be losing Rs 6.45 on every litre of petrol, Rs 5.50 a litre on diesel and Rs 19 on kerosene. They also lose Rs 260 per LPG cylinder.

Even oil producing companies such as ONGC are unhappy about rising crude oil prices. “The appreciating rupee knocked down our realisation by nearly 10 per cent in the fourth quarter of 2009-10 compared to the corresponding quarter of 2008-09. The upside is offset by the rising cost of oilfield services, which rise with crude oil. This is not a happy situation. As an oil producer, we will be happy to see crude oil in the range of $60-70 a barrel,” said RS Sharma, chairman and managing director, ONGC.

Sharma said crude oil prices were not going to remain soft. “The difference between supply capacity and demand is narrowing and speculative marketing is getting hyperactive,” he said.

source: Business Standard

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