The Hindu : Fluctuating oil prices here to stay

Online edition of India's National Newspaper
Wednesday, Jun 19, 2002

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National

Fluctuating oil prices here to stay

By Sushma Ramachandran

NEW DELHI JUNE 18. With the shift to the new liberalised regime in the petroleum sector, consumers will have to get used to the constant fluctuations in prices of critical products such as petrol and diesel. The changes will depend on the movements in the world markets. As crude oil prices harden, domestic rates will go up and a softening of international prices will be reflected in a corresponding decline in prices here.

Ostensibly, these decisions are to be taken by the oil companies but actually the regulator for price shifts continues to be the Government in the absence of a petroleum regulatory agency. The administered pricing mechanism (APM) may have been dismantled but oil companies are continuing to function as a cartel as far as prices are concerned rather than operating in a competitive environment. In the absence of competition, consumers will have to go by the considered judgment of the oil companies along with the Petroleum Ministry on the need for price shifts every fortnight. In a truly deregulated scenario, private sector players would also be marketing products but so far the petrol and diesel retail outlets are being kept as the monopoly of the public sector oil companies. As a result, it is far easier for these companies to function in concert like a cartel on pricing decisions with the tacit approval of the Petroleum Ministry.

It is thus high time the Government set up the proposed Petroleum Regulatory Authority so that deregulation of the oil sector becomes a reality. With the regulator in place, it may be possible for the oil companies to function independently and in a competitive manner on pricing issues which would ultimately benefit consumers. Otherwise, the entire aim of deregulation is defeated as consumers are still dependent on the Government to take decisions on pricing. The timing of price changes is also uncertain at this stage and these may not precisely reflect the volatility in world markets. One of the reasons is the time lag involved in taking decisions on domestic prices. The impact of world prices takes four to six weeks to be felt in the domestic markets owing to the time taken in shipping crude oil from the producing countries. Thus the present dip in international crude oil prices may take several weeks to be translated into lower domestic prices of petrol or diesel.

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