Rising crude prices to dent oil PSUs' profits

Rising crude oil prices without corresponding revisions in retail prices of regulated fuels are likely to dent the profits of India's public sector oil companies.

In a new rerport, CRISIL Research said oil companies' under-recoveries - or the losses incurred on selling fuels at less than their cost price are estimated to rise by 45 per cent in 2010-11, and by another 14 per cent in 2011-12.

Crude oil prices have been rising sharply since October 2010, and nudged $100 per barrel in the second week of January 2011. Temporary mismatches in demand-supply, increased speculation, and a weak dollar, led the run in crude oil prices.

A severe winter in the US, China, and Europe pushed up demand for heating fuel, while a temporary closure of certain oil fields in the US and Europe disrupted oil supply, creating significant demand-supply mismatches.

A second round of quantitative easing by the US fuelled speculative buying of oil futures, as reflected in an increase in net long open positions
of crude oil on the US commodity exchange.

Crude oil prices will recede from the current levels once the demand-supply mismatches diminish.