Crude at $90: Will govt cut fuel price?

NEW DELHI: The day of reckoning on fuel prices may be nearing for the UPA government, with crude briefly going below the $90/barrel mark in the London market on Tuesday as aftershocks of two collapsing US financial giants sent oil traders scurrying for cover against further fall in demand.

Though Indian oil purchases are more attuned to the US and Dubai markets, London���s price movement could well be an indicator of oil���s further fall and make it difficult for the government to ward off the pressure from growing public sentiment for a reduction in pump prices ahead of the festival season and crucial state elections.

For the record, the mix of crude India buys, which is slightly lower than US rates, stood at $91.69/barrel on Monday and averaged $103.66 for the period between August 28 and September 11.

Against this, the Opec basket price was $95.33 on September 12. Since present motor fuel retail prices correspond to about $68/barrel, it is still a long way before the numbers look good for the government to reduce pump prices.

Besides, much of the gains of oil���s fall has been taken away by the rupee���s decline against the greenback. Every Re 1 that the Indian currency loses in its exchange rate with the dollar means the state-owned oil marketing companies have to spend Rs 8,500 crore more for their crude purchase.

No wonder, the companies are still reporting a loss of Rs 5.21 on each litre of petrol, Rs 11.55 on diesel and Rs 300.56 on a cooking gas refill. At these levels, the total loss is projected at Rs 163,497 crore for 2008-09. The figure will rise once the impact of rupee���s fall sinks in.

Under the circumstances, oil minister Murli Deora cannot be faulted for sticking to his guns that crude���s drop is not enough to slash retail prices of motor fuels. But it is to be seen how long he can go along with his oil marketing company bosses and resist public and political pressure.