With international crude prices slipping further on Wednesday to near 17-month lows on fresh worries over Spains mounting borrowing costs,lower consumption by the US and hazy prospects for global demand growth,the benefits of lower oil prices are finally beginning to kick-in for India despite an adverse rupee-dollar equation.
The international crude oil price of the Indian basket slipped on June 19 to $94.28 to a barrel,lower than the $95.86/barrel on the previous trading day. More importantly,in rupee terms,the crude oil price eased to Rs 5,280.62 per barrel on June 19 from Rs 5,329.82 per barrel the previous day,even though the rupee-dollar exchange rate on June 19 had actually dipped to Rs 56.01 to a US dollar,against an exchange rate of Rs 55.60 to a dollar the previous day,according to data computed by the Petroleum Planning and Analysis Cell (PPAC) and released by the Union Ministry of Petroleum and Natural Gas today.
While global commodity prices,especially crude,have been on the decline in the wake of strong macroeconomic headwinds,the big worry for India has been the sharp depreciation in the rupee,which threatened to negate much of the benefits from this downcycle in prices of commodities such as oil. In that context,the slide in global prices translating into gains in rupee terms,even though the domestic currency has continued to slip,is significant,say analysts.
Petroleum Ministry officials,though,contend that the benefits of the dip in the Indian crude basket (in rupee-terms) would be purely restricted to minor gains the refinery level and that only a sustained run in the favourable price trends for at least a fortnight,if not more,would actually translate into a softening of price trend beyond the refinery gates. They also pointed to continuing under recoveries on sale of petro products,with oil marketing companies such as Indian Oil Corporation and Bharat Petroleum Corporation (BPCL) estimated to have incurred losses to the tune of Rs 72,000 crore,with the rupee plummeting to Rs 56 to a dollar. As on June 20,the current under-recovery on diesel was estimated at Rs 13.64 a litre,on kerosene Rs 31.41 a litre and on cooking gas LPG Rs 479 per cylinder for these state-owned firms.
In India,prices are fixed at the refinery gate depending on each products average monthly or fortnightly price in the international market and on government pricing rules for various products. Diesel and petrol prices are linked to international gas oil and gasoline prices respectively but the ex-refinery price is calculated on a trade parity basis. The weights given are 80 per cent to import parity (including customs duty,freight,insurance) and 20 per cent to export parity (Singapore free-on-board basis).