Oil prices forged to their highest level in 13 years on Tuesday as violence in West Asia and low US fuel stocks stoked concern over world supplies.
IPE Brent crude surged 132 cents to $36, its highest level since the Iraq war, following the weekend killings of five Western workers at a Saudi chemicals plant in Yanbu.
The International Energy Agency, energy adviser to 26 industrialised nations, has warned that high oil prices could "inflict substantial damage on the economies of oil-importing countries and on the global economy."
The impact of rising oil prices is mixed for Indian oil firms: it is bad news for marketing companies, but exploration companies and stand-alone refiners stand to gain.
The state-owned Oil and Natural Gas Corporation gets import parity prices for the 23 million tonnes of crude oil it produces. Every $1 a barrel increase in the international price of crude oil results in a Rs 900 crore jump in its turnover.
With the latest spurt in the international prices, the average price of the Indian basket of crude during the current financial year has gone up to $32 a barrel, over $4 more than the average price in 2003-04.
Annualised, this means an increase of Rs 3,600 crore in ONGC's turnover this year. Back of the envelope calculations put ONGC's profit after tax at 30 per cent of turnover.
Similarly, refining margins tend to rise with international crude oil prices. So stand-alone refineries stand to gain from the latest spike.
But oil marketing companies' will be hit by rising crude oil prices because they cannot pass them on to consumers.
Although on paper they are free to set prices, the government has "sounded" them out not to raise petrol and diesel prices till after the elections.
A Reuters survey released on Tuesday found that OPEC trimmed production 360,000 bpd in April as Saudi Arabia and the United Arab Emirates cut back exports. The UAE oil minister said OPEC might raise official output quotas in the third quarter to replenish stocks.
OPEC ministers are due to meet on June 3 in Beirut to review production policy.
"The organisation does not mind increasing production and changing the output ceiling if there is a need," UAE Oil Minister Obaid bin Saif al-Nasseri said.