Declining crude price translates into lower under-recoveries for OMCs
The Indian crude oil basket price plummeted to $59.95 per barrel, its lowest in three weeks and second-lowest in over two months, on the back of the ongoing financial crisis in Greece that has strengthened the US dollar against other currencies, making oil more expensive for non-US buyers.
The Indian basket of crude oil represents the average price of Oman and Dubai sour grade crude and the sweet Brent crude oil processed in Indian refineries in the ratio of 72:28. It settled at $59.95 per barrel on Monday after the Greek government confirmed it would not be able to make a loan repayment to the International Monetary Fund due on Tuesday, adding to concerns that the country may have to leave the euro zone.
The current price is the lowest since 5 June and the second-lowest since 22 April when the global crude rates had started recovering from less than $60 per barrel levels. Brent crude for August delivery was trading at $62 per barrel, down 0.016% in intraday trade at London’s ICE futures exchange on Tuesday.
A declining crude price translates into lower under-recoveries for Indian Oil Marketing Companies (OMCs), helping the government save on its huge petroleum subsidy bill.
After the deregulation of petrol in June 2010 and diesel in October 2014, two petroleum products - cooking gas or Liquefied Petroleum gas (LPG) and Kerosene - are still sold at subsidised rates to consumers.
The OMCs under-recoveries on subsidised petroleum sales came down from Rs 139,869 crore in 2013-14 to Rs 72,314 crore (Rs 723.14 billion) last financial year – thanks to diesel deregulation and the roll out of direct benefit transfer in LPG (DBTL) scheme. In the current fiscal, the government is set to save over Rs 10,000 crore (Rs 100 billion) in petroleum subsidy, one third of the budgeted Rs 30,000 crore (Rs 300 billion) owing to DBTL which has eliminated around 40 million ghost connections.
Consumers are currently entitled to twelve 14.2-Kg cylinders in a year at subsidised rates. Any requirement above that has to be procured at market price. A subsidised 14.2-kg cylinder is currently available at Rs 417 per bottle in Delhi as against a market price of Rs 626.50 per cylinder.
Chief Economic Advisor Arvind Subramanian had said in May the government is comfortable with crude prices in a range between $50 and $80 per barrel.
According to senior Finance Ministry officials, the government is comfortable bearing the entire subsidy burden this fiscal as long as prices remain within this range. The centre does not expect its fuel subsidy burden would overshoot the budgeted estimate even if it exempts upstream oil companies from burden sharing. Meanwhile, the oil ministry is in discussion with states to replicate the DBTL model for eliminating unwanted subsidies in kerosene distribution.
