New Delhi: Selling petroleum products at subsidised prices has virtually ensured that losses at the state-owned oil marketing companies will hit a new record in June.

Diesel, the largest selling fuel in the country, is also the most politically sensitive, and the most subsidised after LPG. With international oil prices having risen to over $130 per barrel, the under-realisation in the sale of the fuel is Rs31.58 per litre, which is sold at Rs31.76 a litre in the national capital.

Now, the new loss estimates for the fortnight starting 1 June, are based on prices of the last fortnight of May 2008, with diesel accounting for almost 40 per cent of sales.

Losses on the sale of petrol have also been mounting, and have breached the Rs20 a litre mark for the first time. Losses on kerosene are now at Rs35.98 per litre and on domestic cooking gas (LPG) at Rs353 per 14.2-kg cylinder, almost Rs50 more than last month.

Consequently, the comprehensive subsidy bill that the oil marketing companies are now accumulating is Rs650 crore per day, up by Rs70 crore each day from the Rs580 crore in May 2008. (See: Subsidies driving top oil companies bankrupt)

The three oil marketing companies, Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL), are now more aggressive than before in pushing for a substantial revision of prices in the face of supply restrictions, with IOC having announced plans to ration supplies ina bid to curb daily losses (See: Motorists first to panic as Indian Oil rations fuel)

The opinion within the government is to eave prices of diesel unchanged, given that the inflation rate for the week ending 17 May has already crossed 8.1 per cent, and any upward revision in the price of the transport fuel is likely to drive inflation to new heights. Diesel is the mainstay of transportation of the Indian economy, powering trucks and rail road freight of commodities, and thereby having a direct link to commodity prices.

Estimates predict that a Rs3 increase per litre in the price of diesel could hike inflation by around 20 basis points.

However, the oil industry feels that revising only petrol prices does not really solve the mounting under recoveries, as diesel commands the largest volumes of sales.

In his efforts to draw collation partners into a dialogue and to get them to come to a consensus on the matter, Prime Minister Manmohan Singh yesterday said that the trend of subsidising fuel prices "cannot continue forever", thereby indicating that a hike in fuel prices is on the cards (See: Prime minister seeks consensus on oil price as RSP) quits UPA-Left council 

Speaking at the Assocham annual general meeting, prime minister Singh said that it would not be prudent to allow the subsidy bill to rise any further, and that the government does not have ''the margin to fully insulate the consumer from the impact of...oil price inflation."

Therefore, the government is now left with no option but to hike the price of fuel which are driven by soaring international prices of crude oil in the global market.

Addressing the Assocham annual general meeting, prime minister Singh said, ''Up to a point we can insulate poor sections of our society and we have done that. Our government has not raised the price of kerosene in the past four years. We have only marginally raised LPG and diesel prices. Even petrol prices do not fully reflect world trends. In the case of other national resources, especially water, we have been altogether imprudent. This situation cannot continue forever. We need wider political consensus to adopt more rational economic policies.''

The petroleum ministry had earlier proposed hiking petrol prices by Rs10 a litre, diesel by Rs5 per litre, and cooking gas (LPG) by Rs50 per cylinder to cut the mounting losses of the state-run oil marketing companies. However, the Left parties have oppose all moves to hike prices of transport and cooking fuels, citing the burden of inflation on the average citizen.

Oil prices have more than doubled since a year ago, driven to unsustainable heights by supply fears, increased demand from robust economic development in Asia, and persistent supply disruptions in key oil producing nations such as Nigeria.

The last time the government revised the price of kerosene was four years ago. Diesel and LPG prices have been revised only marginally, and petrol prices remain below lower than world prices.