OPEC’s decision on output hike to have little impact

Though OPEC’s decision to raise output by 2 million barrels per day or 8 per cent, which is effective from July 1, is expected to bring...

Though OPEC’s decision to raise output by 2 million barrels per day or 8 per cent, which is effective from July 1, is expected to bring down crude oil prices by $2 per barrel in the future, oil firms have hit the panic button as crude oil prices continued to hover above $40 per barrel even on Thursday. They continue to demand a hike of at least Re 1 per litre in the prices of petrol and diesel.

Experts do not see any immediate impact of OPEC’s decision. ONGC CMD Subir Raha told the media that ‘‘against global oil consumption of 80 million barrels per day, OPEC countries produce just 25 million bpd. The remaining 55 million bpd is produced by non-OPEC countries and I don’t see OPEC’s decision to raise output influencing the prices substantially.’’ According to P Sugavanam, director, IOC, ‘‘OPEC can ask members to produce more but that’s not going to help much. There might be a drop of $2 a barrel, but prices would firm up again’’.

According to senior officials of IOC, BPCL and HPCL, the loss on the account of the non revision of prices in the last two months alone (April-May 2004) have been more than Rs 2,500 crore. The month of June is expected to be worse for oil marketing firms. The last price revision was done in January 2004, after which the NDA government did not give the oil firms much room for price revision. Even, the new Congress-led government is facing strong resistance from its partners— especially the left parties— not to raise petrol and diesel prices. BPCL officials put their loss at Rs 500 crore. HPCL’s loss is also estimated at around Rs 800 crore. All the three oil marketing firms agree that June would be worse.

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Oil firms have been writing to the government for the last few months. Even after Mani Shankar Aiyar took over as the Petroleum and Natural Gas minister, officials of oil marketing firms met him and appraised him of the situation. Aiyar has also discussed the matter with the Prime Minister and the government seems to be working out a formula by which the raise on retail prices would be minimal. Part of the burden would be taken up by oil companies and the remaining would be adjusted through duty cuts. However, duty cuts seem unlikely before the budget, expected in the first week of July.

A senior director in IOC said it would be too late to wait till July and hence the government should raise the prices of petrol and diesel by at least Re 1 per litre. They are however, hopeful, that some action would be taken. According to BPCL CMD S Behuria, ‘‘everyone is aware of the present situation and we hope some relief would come in future’’.

An IOC official added that though technically marketing firms need at least a raise of Rs 5 to Rs 4 per litre in petrol, and Rs 3 per litre in diesel to offset the losses, in reality they expect a raise of Re 1 per litre. ‘‘The government can implement a raise of Re 1 or 50 paise per litre, but the ball needs to be rolled immediately. Anything above $23 per barrel is a concern. Even after the OPEC output raise we would be looking at $36-$35 per barrel’’, the official added.

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