Re­tail fuel prices likely to re­main high


Resource Digest - - CONTENTS -

Diesel and petrol prices are about 20 per cent more than what they were a year be­fore at this time and seem un­likely to re­duce. Global crude oil prices are inch­ing up­wards af­ter out­put cuts by the Or­gan­i­sa­tion of the Petroleum Ex­port­ing Coun­tries (Opec) car­tel. And, the gov­ern­ment is not likely to cut the ex­cise duty.

Diesel is now Rs 57.82 a litre in Delhi, 25 per cent higher than in De­cem­ber 2015. Petrol is Rs 70.6 a litre, about 18 per cent more from then.

Opec de­cided on Novem­ber 30 to im­ple­ment a new com­bined pro­duc­tion tar­get of 32.5 mil­lion bar­rels a day, lower by 1.2 mnbbl/day from the ear­lier tar­get.

"How fast the mar­ket re­bal­ances will de­pend on the dis­ci­pline to en­force and main­tain the cuts across a dis­parate group of oil pro­duc­ers, es­pe­cially with cri­sis-rav­aged mem­bers Libya and Nige­ria ex­empted but with the po­ten­tial to see large additions in out­put," S&P Global Platts, the en­ergy watch­dog body, said in its out­look re­port for this year.

More, a re­turn by US shale oil pro­duc­ers could keep a lid on prices. Those in the sec­tor say the Opec cut was fac­tored into global prices. "The cut will show in sup­ply now but the mar­ket had ear­lier dis­counted some of the im­pact," said D K Sar­raf, chair­man of Oil and Nat­u­ral Gas Cor­po­ra­tion (ONGC). He ex­pects global crude to stay at $60-65 a bar­rel.

Over the past two years when prices were low, he said, the gov­ern­ment had taken some en­cour­ag­ing steps such as de­con­trol of diesel pric­ing, di­rect ben­e­fits trans­fer (of the sub­sidy) in cook­ing gas and cur­tail­ment in kerosene sup­ply. This has helped cut the sub­sidy.

ONGC has not shared the sub­sidy bur­den of the three gov­ern­ment-owned oil mar­ket­ing com­pa­nies (OMCS) for the past three quar­ters, due to the low prices and gov­ern­ment mea­sures. Be­ing an oil pro­duc­ing com­pany, ONGC ben­e­fits from a rise in global prices but has to share the sub­sidy bur­den of OMCS un­der a gov­ern­ment mech­a­nism.

As of March last year, the ba­sic cus­toms duty on petrol and diesel was 2.5 per cent. Petrol at­tracts an ex­cise duty of Rs 21.48 a litre and diesel of Rs 17.32 a litre.

"The gov­ern­ment has been smart to build on the ex­cise duty, keep­ing it high when crude (price) was down. This gives them a win­dow to cut ex­cise and even out the rise in crude prices. How­ever, the gov­ern­ment is un­likely to ex­er­cise this in the next one year or so, as it might not see in­fla­tion due to higher com­mod­ity prices as an is­sue yet," said an an­a­lyst.

Added an­other an­a­lyst, from a for­eign bro­ker­age: "What hap­pens on the re­tail side and if ex­cise duty cuts will come to the res­cue will de­pend on the crude price move­ment. For now, this seems to have sta­bilised at $55 a bar­rel, also re­flect­ing in re­tail prices. We ex­pect global crude prices to re­cover grad­u­ally over two to three years. If there is a sharp rise, only then might ex­cise cuts be an op­tion."

With the ear­lier global dip in crude prices, de­mand rose for petroleum prod­ucts. Petrol con­sump­tion in April-novem­ber 2016, first eight months of this fi­nan­cial year, rose to nine mil­lion tonnes (mt) from 8.7 mt a year be­fore. Diesel con­sump­tion in the same pe­riod grew to 50.7 mt, from 48.7 mt ear­lier.

"This de­mand surge could have been due to re­stock­ing on in­ven­to­ries. A growth rate of five to six per cent is a more mod­est one to as­sume," said one of the an­a­lysts quoted ear­lier.

Stock prices for the coun­try's oil ma­jors did not show any sig­nif­i­cant de­cline af­ter the Opec de­ci­sion. The BSE In­dia oil and gas in­dex has risen 5.1 per cent since Novem­ber 30. In the seg­ment, Oil In­dia and In­dian Oil Cor­po­ra­tion were the high­est gainers in that pe­riod, while Petronet LNG and Cas­trol In­dia lost the most.

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