The positive impact of the February 14 hike in petrol and diesal prices on oil marketing companies has been negated in just a fortnight with daily retail losses of these companies going back to over Rs 410 crore (Rs 4.1 billion) for the fortnight ended February 29. This is due to the steep rise in global crude prices in recent days.
The retail prices were hiked by Rs 2 per litre for petrol and Re 1per litre for diesel.
Indian Oil Corporation, the country's largest crude oil refiner and marketer of petroleum products, is losing over Rs 200 crore (Rs 2 billion) per day as it sells petrol, diesel, LPG and kerosene at subsidised prices.
It is losing Rs 9.70 on every litre of petrol that it sells and Rs 12.20 on every litre of diesel. It is losing Rs 21 per litre of kerosene sold and Rs 304 per 14.2-kg LPG cylinder.
"The record high crude oil prices have resulted in soaring prices of petroleum products in global markets. Our under-recoveries have proportionately gone up," said a senior IOC official.
The basket of crude oil that Indian refiners buy touched a fresh high of $98.99 per barrel on Thursday, the latest day for which data are available. The price of the basket has been hitting new highs every day this week, following a record high of $106 per barrel on New York Mercantile Exchange.
The average price of the basket so far this month is $97.66 per barrel, compared with $92.37 per barrel in February and $89.52 per barrel in January.
Just before the prices were raised, IOC was losing around Rs 9 for every litre of petrol sold and Rs 11 per litre of diesel.
"This proves that the price hike in February was very insignificant. There is no way that such a small hike is sustainable," said a senior official with BPCL, the country's second largest oil marketing company.
Analysts and industry officials say the worrying part is that the price of crude oil is rising despite a slowdown in the US, the world's largest consumer. "If the prices keep rising, it will not be long before oil marketing companies become loss-making," said a Mumbai-based analyst.
It is not just oil marketing companies that suffer as a result of high crude oil prices and price control on petroleum products. Upstream oil companies like Oil and Natural Gas Corporation and GAIL India also bear up to a third of the total retail losses of the marketing companies.
ONGC's subsidy share in this financial year is expected to go up to Rs 24,000 crore (Rs 240 billion) compared with Rs 20,000 crore (Rs 200 billion) last year. The company recorded lower net profits in the quarter ended December 2007 as a result of this higher subsidy burden.
The government has attempted to control the tax liabilities of the oil marketing companies by withdrawing the ad valorem component of excise duty on petroleum products in the Budget. The tax liabilities of the companies will now not rise even if crude oil prices go up.
