Monday, 19 September 2011

Fuel Price Hike : Positive sign for Indian Oil Corporation

Crude oil is natural recourse. It may not be available in future. It’s nature’s gift. “We live in an environment, if we take certain action; the environment is going to turn against us.”

Indian Oil Corporation (IOC) has decided to increase its product prices. People said, “Government of India is very rude towards fuel prices. He is not able to control fuel prices. Oil companies are making huge profits.” But actually that’s not true.

Is it mandatory to increase fuel prices?

Yes, it is mandatory to increase fuel prices by oil companies. Indian Oil Corporation is losing Rs. 196 core per day on selling diesel, domestic LPG and kerosene at government controlled rates. “We are losing Rs. 18.11 per litre on diesel, Rs. 28.33 a litre on kerosene and Rs. 315.86 per 14.2-kg domestic LPG cylinder,” head of IOC said in an interview. While retail price of petrol is benchmarked at $98 per barrel of international rates, the same for diesel is at $72-73. India buys crude oil an averages $120 per barrel currently.

Now if we are saying that oil companies have huge profit margins then revise these figures, lose of Rs196 core everyday on selling diesel below its imported cost, Rs53 core on kerosene and Rs48 core on domestic LPG. Now I think that you can understand how it seems while making annual report.

Along with IOC, Hindustan Petroleum and Bharat Petroleum are losing Rs1, 77,562 cores in revenues on selling diesel. The situation in the current 2011-12 fiscal will be worse. In the 2010-11 fiscal, the three firms lost Rs78, 202 cores, but the government has provided only Rs20, 911 cores in compensation.

Dark clouds of under recovery are still likely to be set high for Indian Oil Corporation. They were estimated about Rs. 44,000 core in the first quarter. According to Centrum Research, total recover for 2011-12 would be about Rs. 97,000 core. That is higher than Rs. 78,000 core in 2011-10. Though, Government left with single option. Increase fuel prices to reduce overall under recovery.

Behind this incremental of fuel prices demand is equally responsible. IEA’s (International Energy Agency’s) recently forecasts estimate global crude oil demand to increase by 1.2 million bpd (barrel per day) in 2011-12 and 1.6 million bpd in 2012-13.

As we seen demand numbers I seems that the more we full our vehicle tanks the more demand will increase. Demand will increase and IOC will import more barrels of crude oil per day. And may be debt increases for Indian oil companies. And to meet that debt government will increase fuel prices.

If possible avoid extra expenses on your vehicle in terms of fuel.  Use public transport. Share your vehicle for mutual destination. By these small-small changes we could avoid high fuel prices in future.

Use renewable recourses. Save planet Earth.


  1. Really nice favor for oil companies..
    But reality is petrol price is too high, may be it's due to crude price high or government policy.
    When we compare petrol price with other country's, we find the answer of this.
    People are always think about the result not reasons.So here government become a Villon for the people.

  2. Yes Anand you are absolutely right.
    But demand varies from country to country, India's demand couldn't match with U.S or South East countries.
    And the crude oil which government imports has to go through certain refining processes. And then it is available for our vehicles. So for this finished product (petrol) government has to pay expenses like, shipping cost, import cost, currency rates, interests etc.

  3. "Worst case" Indian oil companies may run out of cash.