Naik to wait and watch as crude dips

Naik to wait and watch as crude dips
Madhumita Chakraborty

New Delhi, July 23: A fissiparous OPEC (Organisation of Petroleum Exporting Countries) did manage to bring crude oil prices down last week. The North Sea Brent, which traded at $27.83 a barrel on Monday, was a dollar cheaper at $26.42 a barrel at the spot markets on Friday. Gulf crude prices plunged by nearly a dollar too, from roughly $26.50 a barrel on Monday to $25.60 a barrel on Friday.

This is the moment policy-makers in India were waiting for. Union Petroleum Minister Ram Naik has, all through the tumultuous volatility in global oil prices, clung on to the pacifying ``wait-and-watch'' stance. The Union Petroleum Ministry has to watch global price trends because refineries at home get reimbursed for petroleum products accordingly.

``We are looking for a medium-term trend in petroleum product prices (in the world market) before we begin to review oil prices in the country,'' a senior ministry official told this correspondent recently. The catch in that sentence was the phrase the ``trend in petroleum product prices.'' Prices of petro-fuels have not played along the crude price track and logically so, because product prices after all, respond to demand and of course, supply trends. Even in the month gone by, when Saudi pressures to hike crude output despite opposition from fellow OPEC members, did bring down prices of crude oil, product prices stayed relatively firm.

In the Gulf, which is India's closest source of crude oil and petroleum products, crude prices dropped by nearly 10 per cent from $ 28 a barrel from June 22 to $ 25.62 barrel on Friday, July 22. The sly increases in OPEC output did nothing to prices of jet fuel, gasoil or high speed diesel (HSD) and propane or liquefied petroleum gas (LPG).

Propane or LPG prices in West Asia are nine per cent higher since June and 18 per cent higher than in December last year. Diesel or gasoil prices have shot up by 10 per cent to $228.50 a tonne FoB (free on board) from $206.50 a tonne FoB in June. Diesel prices are 26 per cent dearer in the world market than in December and are nearly 40 per cent higher since the last diesel price revision in the country in October 1999.

Jet fuel or aviation turbine fuel prices were last increased in March. World market trends are 13 per cent higher since then. Prices of jet/kero (as the fuel is known in the global mart) turned more than 11 per cent dear between June and July.

The direction in which petro-fuel prices are moving in the world market suggest another round of oil price hikes in the country, but that would be a simplistic assumption. As a think-tank close to government pointed out succinctly, the government (which still controls prices of diesel, kerosene, jetfuel and LPG) had three options.

It could make petro-fuel consumer pay more, because oil refineries have to be paid more for petroleum products. It could increase prices of petro-fuels at the ex-storage point and slash taxes, so that the price hike be at the cost of the revenue department and not consumers. The government could also not do anything at all.

The political climate is heavily loaded in favour of the ``do nothing'' option. The Petroleum Minister is not in favour of a mid-term revision in excise or customs duties. ``Any exercise we do now will be for the coming Budget (in February 2001),'' he had recently said. The brave option of raising prices of essential petroleum products to invite the wrath of truckers (the last diesel price hike was followed by truckers' strike), the opposition in Parliament and even some allies of the ruling coalition, also seems unlikely. Petroleum Minister Ram Naik has had his share of controversy over strategic status for oil PSUs (public sector undertakings) and may not be in a mood for more.