Falling crude prices reduce fuel subsidy Brent crude oil fell below $90 to a four-year low on Friday, taking some pressure off the countrys fiscal deficit as the oil subsidy bill is now 37% lower than earlier projections based on a higher price. Brent is now down 25% since June and the trend is likely to continue because of oversupply and slack international demand. State oil firms, which initially projected over Rs 127,000 crore revenue losses in 2014-15 in selling diesel, kerosene and cooking gas below market rates, have now reduced the figure to about Rs 79,800 crore because of falling international oil prices, government and industry sources said. Weak demand in Asia and Europe along with excess supplies has pushed oil to a bear market despite tensions in the Middle East and Ukraine. Major producers in the Middle East cut prices to retain their market share, sending more bearish signals to the market. Analysts said other suppliers are also likely to cut prices. Subsidy estimates would have been much lower if the rupee would not have depreciated, an industry official said. One dollar is valued around Rs 61.5, which was about Rs 60 in June-July this year, sources said. A weak rupee inflates Indias oil subsidy bill as it imports 80% of crude oil it processes and pays in dollars. A sharp fall in global oil prices and consistent increase in diesel rates every month since January last year has resulted in over-recovery on diesel. It is estimated that state oil firms would make an over-recovery of about Rs 1,176 crore in diesel in October-December 2014, sources said. Total subsidy has dropped because of a sharp fall in revenue losses on diesel. Revenue losses on diesel are estimated to be only Rs 4,687 crore in 2014-15 compared with Rs 62,837 crore in the same period last year, sources said. Total subsidy has dropped because of a sharp fall in revenue losses on diesel. Revenue losses on diesel are estimated to be only Rs 4,687 crore in 2014-15 compared with Rs 62,837 crore in the same period last year, sources said. ET reported on October 6 that diesel has given an unexpected fiscal bonanza to the government as revenue loss on the fuel has plummeted toRs 2,712 crore in July-September, less than one-third of the previous quarters Rs 9,037 crore. Diesel has become significantly profitable for Indian refiners as international crude oil prices fell sharply since it soared to $116 in June. Consequently, diesel prices went above market rates by 35 paise in mid-September after nearly a decade of revenue losses on the fuel. On October 1, the gain increased to Rs 2.13 per litre but the government has not cut the retail price. Officials said one of the considerations for delaying the decision is the possible objection by the Election Commission because of polls scheduled in two states. The government is also reluctant to deregulate diesel prices immediately, which will not only have political impact in case of a spike later this year but also expose state-run state oil marketing companies to aggressive private competition. Source:The Economic Times
Posted on: Sat, 11 Oct 2014 07:24:52 +0000
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