High crude price eats into PSU oil companies’ profit

15 April, 2008:

Public sector oil companies have stepped up pressure on the Indian Government for petroleum product price revision considering soaring crude prices in the global market.

In the global market, crude price has breached the $ 115 per barrel record. According to industry sources, the losses incurred to Indian oil marketing companies for the financial year 2008 would come around 80,000 crore, if prices prevail at this rate.

During the last three months, crude prices in the global market has risen more than 30 percent. But India's domestic oil marketing companies could not raise the price due to government regulation in the sector. Even though global prices of crude have been increasing steadily, there won’t be any immediate impact on retail customers. Prices of key petroleum products such as diesel, petrol, LPG and kerosene are now fixed by the government considering its impact on retail prices. The government of India is reluctant to allow the prices of these products to be raised as it may result in pushing inflation numbers higher.

The Indian government is now trying hard to contain rising inflation with lots of monetary measures. In this situation, if prices of petroleum products are revised, there could be a huge impact on the overall inflation situation in the country. Four petroleum products — diesel, petrol, LPG and kerosene — account for about 65 per cent of total oil product sales in India. The prices of these products are not linked to actual market prices but are much lower. The deficit is shared by the government, oil production companies, and oil marketing firms.

The rise in crude prices has badly impacted the profitability of three oil companies such as Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation. With the 2008 General Elections around the corner, the Congress is not in a position to increase product prices. Since the prices of petrol, diesel and LPG are controlled, the oil companies could see a total under recovery of Rs 1,20,000 crore in the 2009 fiscal.