Oil firms' losses may decline on softening global crude prices

With global crude prices softening, the petroleum ministry has estimated substantial reduction in revenue losses to oil marketing companies (OMCs) on sale of diesel, LPG and kerosene this year.

Underrecoveries or revenue losses to oil firms on sale of diesel, LPG and kerosene this year may be at Rs 1.25 lakh crore, or Rs 38,000 crore less than last year, if global crude prices remain at the present level,” an oil ministry official told Deccan Herald.

Underrecoveries of oil companies was Rs 1,63,000 crore in 2012-13. The decline in underrecoveries will imply that the finance ministry will have to shell out less money this year as subsidy to oil companies.

Decline in fuel subsidies will also mean some relief in the government’s fiscal deficit position. Oil prices also have a direct bearing on inflation. Softening of oil prices will mean lower inflation, especially of food items.

It is due to lower crude prices in the past months that the oil companies have reduced petrol prices in their last revision and have also not resorted to the diesel prices hike in April, the official said.

Oil companies stayed away from hiking diesel prices this month despite a green signal from the government to effect a hike of upto 50 paise per month on the highly subsidised fuel till the losses incurred by them were eliminated.

Oil retailers are still incurring losses of Rs 6.48 per litre on selling diesel below market price. But, they were informally asked by the petroleum ministry not to go in for the hike in April as global crude prices were softening.

Conventionally too, fuel prices are not hiked when the Parliament is in session in order to avoid Opposition’s ire.

Analysts expect global oil demand to remain subdued this year mainly on account of slowdown concerns in the euro zone. The International Energy Agency (IEA) recently said 2013 will be the third consecutive year of weak growth in demand.

Daily price revision

The official said that the oil ministry is also contemplating daily revision of petrol prices, a trend followed in advanced countries like the US.

“It may be difficult to revert to a daily revision at one go. To start with, we are suggesting that oil companies go in for a weekly price revision based on global crude movements,” the official said.