Ukraine crisis to give India crude jolt

Fuel prices are poised to go up by Rs 7-8 per litre as Brent, the global benchmark crude, raced towards the $100 per barrel mark as the Ukraine crisis spooked the oil market already struggling to meet rising demand.

As Brent hit $98/barrel, the mix of crude bought by India, otherwise known as the Indian Basket, too rose to $93. 6, marking a $10 increase since November 4 when the Centre cut excise duty by Rs 10 on a litre of diesel and Rs 5 on petrol to give relief from high oil prices ahead of the state elections.

Pump prices have remained unchanged since then under an informal government diktat. The sharp increase has widened the gap between the actual cost and retail prices of petrol and diesel, leading to under-recovery for retailers. According to ballpark, every $1 increase in crude price impacts retail rate by 70-80 paise. The freeze on price revision, as seen after previous polls, is expected to be lifted once the last ballot is cast on March 7 and the retailers will start raising the prices. They, however, may not get to recoup the past under-recovery fully, which will impede profit of companies such as IndianOil, Hindustan Petroleum and Bharat Petroleum. But on the flip side, high oil prices will buoy the bottom lines of domestic producers such as ONGC and Oil India Ltd. The Ukraine crisis will keep oil on the boil in the coming months to keep fuel prices in focus, unless a breakthrough in the US-Iran talks brings Iranian oil to the market. But there will be no hiccup on supplies since India barely imports oil from Russia through the western route. But the Ukraine crisis will pinch India in gas prices too. India meets half its gas needs through imports by way of LNG, or liquefied natural gas. Though India hardly imports LNG from Russia, the crisis has pushed up the fuel’s prices.

This will raise the cost for industry.

Rising fuel costs will jack up inflation and may prompt hardening of monetary policy by the RBI, raising the cost of living.

No comments: