Oil price hike

The recent round of petro price hike offers some solace to oil marketing companies but not petroleum refiners. Apart from the price hikes, the reduction in customs duty on diesel and petrol and a changeover to ‘trade parity pricing’ were two key changes.

Till ’06, oil refiners were paid an import parity price for products like diesel and petrol. This is the notional landed cost the marketing company would have paid for importing these products. Since customs duties on products were higher than on crude oil, they offered substantial protection to domestic refineries. But rising crude prices and the lowering of duties on petro products ended the honeymoon.

Also, the government has changed the way this parity price has been calculated. The new formula called the ‘trade parity’ price is derived from an 80:20 imports and exports basket. Since the export portion’s price realisation is based on a notional export price, which typically would be lower than imports, the net effect is a lower parity price.