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Oil companies in a spot as Brent prices surge

Monday, 20 February 2012 | 00:00
Brent crude oil prices have been rising steadily this week and Friday's level of $120 a barrel is bad news for India's oil industry, which imports 80 per cent of its needs.
None of the public sector refiners is pressing the panic button yet since this is being viewed as an aberration. “For all we know, crude prices will be down by $10/bbl in the coming weeks. The fears of oil supplies being hit with the Iran crisis is a temporary phenomenon,” an oil sector official told Business Line.
Price hikes?
And, what if they don't and instead surge towards the $130/bbl mark? “Well, then things could start getting slightly sticky for us,” he conceded. There will be no choice then but to hike petrol prices which are already subsidised to the tune of Rs 5/litre.
Diesel losses are even higher at Rs 12/litre, but an increase in prices is inconceivable at this point when food inflation is still hurting households. The same logic holds good for cooking gas, at least for now.
A crude oil price spiral is the last thing the refiners want at this stage as it will only increase their subsidy burden on these fuels. It will also be a further setback to the Government which is already grappling with skyrocketing subsidy numbers on fuels, fertiliser and food.
IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation posted profits in the third quarter of this fiscal, thanks to the Government squeezing more out of the upstream sector in the compensation package. Even this may not work in the fourth quarter if crude oil prices go completely awry as they did in 2008-09 when they touched $147/bbl.
Source: Hindu Business Line
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