'No revision of oil prices yet'

By Sushma Ramachandran

NEW DELHI, SEPT. 12. India is not likely to be affected immediately by the surge in prices in the world oil markets which reacted sharply to the terrorist attacks in the U.S. A revision of domestic oil prices is clearly not on the anvil though the situation may have to be reviewed if the hardening of prices continues in the medium term. Fortunately, the country has two months inventories of critical petroleum products in hand while term contracts have also been tied up for the next few months.

The Petroleum Minister, Mr. Ram Naik, said it is a ``panic reaction'' to the attacks on the part of the markets. He described the attacks as ``dastardly and heinous''. He underlined the need to wait for events to unfold over the next few days before reacting to the situation. He welcomed the assurance by the Organisation of Petroleum Exporting Countries (OPEC) that it would maintain supplies at the existing levels. At the same time, he was anxious to provide assurance that the country had sufficient stocks to meet any eventuality.

Despite this reassuring posture, the Ministry has begun to review the situation in the light of the attacks and the repercussions in West Asia, from where India imports bulk of its crude oil and petroleum products.

The country should be able to sustain the shock of fluctuating prices in the short-term. For instance, there was spurt of about $ 3 per barrel in Brent crude yesterday which ultimately closed at $ 1.6. This level of fluctuation would not have any significant impact on the country's purchases of crude or petroleum products since the bulk of imports are tied up as term contracts. Even in the case of spot purchases, which have been reduced significantly over the last few years, prices are fixed on a two-week average at the time of loading.

At present, it is estimated that a $ 1 increase in world prices could affect import costs by Rs. 200 crores over one month. Thus, if the present rise of $ 3 per barrel continues for one month, the impact on the oil import bill would be about Rs. 600 crores. Much will depend, therefore, on the events of coming days and whether the U.S. decides to strike back at the terrorist elements in West Asia which are suspected to be behind the attacks. If the situation escalates into a war-like scenario, prices could skyrocket and have a significant impact on this country which imports as much as 80 million tonnes of oil. Last year's import bill was a staggering $ 15 billion.

Even at the current level of prices, the oil pool account had a deficit of Rs. 12,600 crores. It has been estimated by the Ministry that assuming that domestic prices and taxes on oil products remain unchanged during the year, the deficit will reach Rs. 14,500 crores by April 1 next year.

Oil industry sources say each refinery keeps an inventory for about 15 to 20 days. They do not anticipate any shortfall in availability in view of these stocks as well as the fact that imports have been tied up for the next few months.

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