Oil Slick Ahead, But Price Hikes Likely to Cushion Impact

While higher crude prices will raise the subsidy bill for FY14, diesel price hikes mean under-recoveries won’t shoot to record high

The price of crude oil has risen to a historic high in August 2013 for India’s imports, thanks to rupee’s unprecedented depreciation. In the first week of August India’s cost of crude oil jumped beyond . 6,500 per barrel, as the rupee fell over 14.5% in the past three months.
This cost is probably higher than even July 2008 when prices spiked to a record high of $145 per barrel. Then, the rupeedollar rate at 43 meant imports cost below . 6,300 per barrel. The current crude oil price isover 25%lower than that price but the rupee’s fall has negated all beneficial impact.
While this is bound to increase the government’s subsidy bill for the current fiscal, the series of diesel price hikes means under-recoveries won’t shoot to record high. Petroleum retailers are losing . 379 crore every day starting August 2013 versus . 403 crore of August 2012. The losses on diesel are down to . 9.29 per litre compared to . 12.9 per litre a year back.
The industry reported a revenue loss of . 25,579 crore for the April-June 2013 quarter. This should jump to . 33,500 for the July – September ’13 quarter. Still the under-recovery for FY14, at an estimated . 126,000 crore, will not cross the . 161,000 crore figure of FY13.
The three oil marketing companies — Indian Oil, BPCL and HPCL — are set to suffer the most, which is visible in the 35-40%fall in marketcapitalisation over the past three months. Although, higher oil prices should benefit ONGC and Oil India, they are expected to bear the biggest brunt of the incremental losses, which is why they too have lost 16-20% in the past three months.