The country's oil refining companies are hopeful that the Organisation of Petroleum Exporting Countries will implement a price band for crude oil which they say will bring more certainty to their operations.
"If a price band is implemented, we will at least know how much we will spend in buying crude oil during any particular period," said BN Bankapur, director (refineries), Indian Oil Corporation, which owns nearly 40 per cent of the country's total refining capacity.
The band was proposed by Finance Minister P Chidambaram at a summit of oil producing and consuming countries in Jeddah on Sunday. Under the system, he said, oil producers should ensure that prices do rise above a limit and consumers ensure a minimum price.
The around 70 per cent rise in oil prices over the last year has put pressure on the finances of crude oil refiners around the world. Indian refiners, which also sell to retail consumers, have been suffering revenue losses as the cost of crude oil has risen; but the retail selling price has remained almost stagnant.
"A price band will also give us clarity on the revenue losses we are likely to incur," Bankapur said.
Industry experts and analysts, however, say such a band is "impractical" and "not possible" even though the "intention is good".
"Who will fix the floor? The economy of each consuming country is different and so is the self-sufficiency in refining. The opinion of oil exporting countries differ even on whether the current oil prices are justified," said Deepak Mahurkar, associate director at PricewaterhouseCoopers.
Other analysts say the emerging dominance of non-Opec oil producing countries such as Russia, which recently overtook Saudi Arabia as the largest producer of oil, will negate the effectiveness of such a band. Nearly 60 per cent of the world's crude oil is produced by non-Opec countries.
Opec had unofficially implemented $22-$28 per barrel price band in 2000. It did not work as even the Opec countries did not follow the band, said reports.
"There is also the question whether there is enough unity among the Opec countries. And then there are the non-Opec producers," said a Mumbai-based analyst.
Higher crude oil prices would suit oil producing countries as the economies of most Opec countries depend primarily on oil. However, analysts say if prices keep increasing, consumers will start developing alternative sources of energy which will adversely impact oil producing countries.
"Higher prices are not always the most desirable thing for oil producers either," said the Mumbai-based analyst.
Finance Minister P Chidambaram said while leaving Jeddah for India, "It (price band) is an idea that I have mooted in the earlier International Monetary Fund meetings and it is the first time I am addressing an oil ministerial meeting. So let them reflect on that, we will follow it up."
Meanwhile, Prime Minister Manmohan Singh on Monday expressed concern over the rising global oil prices and hoped the Opec countries would take steps to cool prices.
