Crude prices hit a 10-year low in Asia on June 15 and the lowest ever in real terms since the seventies, the world over. Prices of petroleum products glided downward in tandem. The promised 6.35-lakh barrel per day (BPD) cut in crude production by key oil producers since, is expected to stem the slide, but the recovery in prices to last year's levels of $18 a barrel is likely to be long and arduous in the absence of any significant spurt in demand.

While oil marketing companies chew their nails, power plants fed on gas or liquid fuels, gas-based fertiliser and sponge iron plants could start counting their savings from fuel price.

Since September last year, natural gas prices have been pegged to 65 per cent of a basket of internationally traded fuel oils. Free pricing proved a boon for gas producers athome, the Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL), till December and then the 10 per cent increase in oil production by Saudi Arabia began to have its impact on prices. Natural gas prices for the January to March quarter (pegged to fuel oil prices for the preceding months) went up by 12.4 per cent.

In the following quarter, the price hike practically rolled back to December levels as fuel oil prices dropped worldwide. In the last 30 days fuel oil prices have slid further. Furnace oil prices in the Gulf, for instance, fell by 12.23 per cent, from $64.38 a tonne on May 18 to $56.50 a tonne on June 18. At the Singapore port, furnace oil prices dropped more drastically by 15.27 per cent.

The drop in natural gas prices at home, will probably be more gentle, pegged as it is, to an average of fuel oil prices during a quarter. The 118 power generating units that have been promised 131.58 lakh tonne of liquid fuels will get a respite from the drop in prices of naphtha, low sulphur heavystock (LSHS) and light diesel oil (LDO) the world over.

Naphtha prices dropped by nearly 14 per cent last month, since national oil companies pegged down the price of the liquid fuel by five per cent in May. In the Gulf, naphtha prices fell by 13.6 per cent from $136.53 a tonne on May 18 to $117.9 a tonne on Thursday, June 18. In Singapore naphtha now costs 14.2 per cent less at $122.58 a tonne, compared to $142.92 a tonne a month ago. The nearly seven per cent depreciation of the rupee may wear off some of the gains from the global price crash, but liquid fuels should still prove cheaper.

On April 1, national oil companies were for the first time, allowed to freely price naphtha, LSHS, furnace oil, LDO and bitumen. The refining and marketing companies chose to pare down the rates of these industrial fuels by between three per cent and five per cent.

The national oil companies, Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL)also absorbed the freight charges as they were wont to do, under the administered price regime. Before the second price revision takes place later this month, oil companies are expected to work out a formula, based on global prices. Freight will also be passed on to industrial consumers, like liquid fuel based power plants.

High speed diesel (HSD), which accounts for 50 per cent of the petroleum product sales in the country, is priced every month at an ``adjusted'' import parity rate. The adjustment enables the oil pool account to take a slice of the margin between the import price and the consumer price, that has now been shorn of subsidy.

High speed diesel (HSD) prices came down by nearly nine per cent in the international market. The Gulf Arab prices of HSD dropped 9.6 per cent to $97.59 a tonne on June 18 from $108.03 a month ago. In Singapore high speed diesel was 8.5 per cent cheaper at $107.65 a tonne, compared with $117.7 a tonne in May.

The crude price slide in the global mart was moredramatic. Brent crude prices hurtled down by 26 per cent to settle at $10.58 a barrel on June 18, from $14.87 on the same date in May. Dubai crude prices fell more gently, because the Gulf oil prices had never really recovered from the slide that began in December last year.

Crude oil prices are now the lowest ever in real terms since the seventies and nearly $7 a barrel cheaper than last year, depressed by a choked market and the slack season for demand. The oil output at 76.6 million barrels per day this year, exceeds the estimated demand of 75 million barrel per day, spewing out a surplus of more than 1.5 million bpd every day.

Pensive oil producers conferred on 6.35 lakh bpd of production cuts last week. Saudi Arabia, Venezuela and Mexico first decided to cut back crude production by 4.5 lakh bpd at a meeting in Amsterdam.

Saudi Arabia, the world's largest producer of oil, pledged cuts of 2.25 lakh bpd. Venezuela will slash output by 1.25 lakh bpd. Mexico, which is not an OPEC member, also vowed toreduce oil output by a lakh bpd.

On June 17, the Gulf Co-operation Council pitched in to stem the slide in crude prices, by committing output cuts of 4.15 lakh bpd. The United Arab Emirates and Kuwait will reduce oil output by 75,000 bpd each. Qatar will slash its oil output by 20,000 bpd, as will Oman, which is not an OPEC member.

The announcements saw a spurt in oil prices in the US, but benchmark North Sea Brent and Gulf oil prices did not respond at once. Oil industry watchers said prices had gone into such a deep groove, that they would not be able to recover to last year's levels of roughly $18 a barrel for a long time.

Petroleum products, meanwhile, are destined to remain in a buyers' market and buyers are unlikely to show much enthusiasm till winter, when oil consumption traditionally goes up.