OMCs to effect yet another petrol price cut

According to media reports, the news has emerged that domestic fuel retailers have decided to undertake a Rs 1 per litre price rollback on the sale of petrol in India. It is expected that the retail petrol prices will be slashed by Rs 1 per litre this time round, which should take the total rollback on petrol prices to more than Rs 3 per litre.

Yet again, the reasons cited for such a move are the softening in global crude prices, which have managed to negate the sharp weakening of the Indian rupee.

The last time when the OMCs had announced a price rollback of Rs 2 per litre, we, at DSIJ, had raised strong concerns over the rationality of such politically-driven moves. We still continue to question the rationale and the proposed logic behind yet another rollback, at a time when all the major sectors in the country are severely feeling the heat of a weak rupee at Rs 52.3 per dollar.

Ever since the last rollback on Nov 16, 2011, the price of crude oil (Brent) has fallen by 3.3% to Rs 107.80 per barrel, while the rupee has depreciated further by 3.5% to Rs 52.30 per dollar. If we convert these using the current rates, the Indian crude oil basket stands at Rs 5627.85 per barrel, as against Rs 5486.82 barrel on Nov 16. In simple words, this means that despite a softening in crude oil prices, the sharp rupee depreciation has managed to make the Indian crude oil basket costlier by Rs 141 per barrel. This leaves us greatly concerned over the method of calculating the hikes and rollbacks that OMCs have adopted.

We already know that the OMCs are currently losing around Rs 336 cr per day on the sale of subsidised fuel, and have posted massive losses of Rs 14000 cr in Q2 FY12. Let us not forget that the Q2 loses occurred at a time when the prices were being hiked on the retail sale of petrol. Hence, one can only wonder what will transpire in the coming quarters following this fresh price rollback.