[drsingh]

Of course fuel,booze,and tobacco are the biggest source of revenue for the government! I remember being told by an acquaintance in the excise department that the government had mandated them to increase excise collection from booze by 30 percent in 3 years!!! So the government promotes booze consumption as public policy! Giving incentives and all! I remember in college days the no.of booze bends in punjab doubled!

[sdp1975]

Having a reasonable amount of tax on petrol is OK.

Given the high taxes, petrol is viewed as a luxury item in the country. Whereas it should be seen as a necessity, a need for transportation.

[Jignesh]

Hello Friends,

Found a good article in Economic Times:

Banning middlemen from oil trade could drive down price of crude by 40%

Banning middlemen from oil trade could drive down price of crude by 40% - Page2 - The Economic Times

The article explains how "pure" speculators - investors who buy and sell oil futures but never take physical possession of actual barrels of oil increase the Price. These middlemen add little value and lots of cost as they bid up the price of oil in pursuit of financial gain.

Thanks,

[Aroy]

Originally Posted by Jignesh

Hello Friends,

Found a good article in Economic Times:

Banning middlemen from oil trade could drive down price of crude by 40%

Banning middlemen from oil trade could drive down price of crude by 40% - Page2 - The Economic Times

The article explains how "pure" speculators - investors who buy and sell oil futures but never take physical possession of actual barrels of oil increase the Price. These middlemen add little value and lots of cost as they bid up the price of oil in pursuit of financial gain.

Thanks,

As they say it is a free world. As the producers benefit from the speculation and the consumers are not in a position to dictate terms, I wonder how you can ban the speculators. Add to this the fact that the crude oil reserves are diminishing hence it is a suppliers and not buyers market.

The speculators are traders in crude oil, and their turn over is huge. India rarely gets crude from these merchants, it is mostly long term Government to Government contracts, so spot prices of crude are not of much concern to India.

If you are bothered about prices, please peruse the recent articles in newspapers on the taxes imposed on petroleum products. It seems that more than 50% of the retail price in many states is taxes.

[Jignesh]

Originally Posted by Aroy

The speculators are traders in crude oil, and their turn over is huge. India rarely gets crude from these merchants, it is mostly long term Government to Government contracts, so spot prices of crude are not of much concern to India.

Hello Aroy,

I understand that India does not buy Crude Oil from these merchants & we mostly buy via Government to Government Contracts.

But Contracts are more to ensure the steady supply of Crude over a period of time, but the Price of the Contract is determined by Market Price of Crude. I mean to say that if Indian Government enter into a Contract with Government of Iran for X Barrels of Crude Oil today, I am sure the Price will be decided based current NYMEX Rate of Crude Oil price which is approx USD 110 per Barrel.

Now the International Price of Crude is mostly determined by the speculators who are trading only on Paper & are not interested in taking or giving Delivery. Basically this means that Crude is Produced in Middle East but the Prices are decided by Traders sitting in New York.

That is why the article points out to the fact that Crude Prices (& Price of other commodities) are pushed up by mere speculators who are trading in a particular commodity only on Paper.

For Example, today if Wheat, Gold & Silver Prices increases, it is not due to shortage of Production but just because the Price of these Commodities on Commodity Exchange (MCX & NCDEX in India) has increased.

Thanks,

[Aroy]

Originally Posted by Jignesh

Hello Aroy,

I understand that India does not buy Crude Oil from these merchants & we mostly buy via Government to Government Contracts.

But Contracts are more to ensure the steady supply of Crude over a period of time, but the Price of the Contract is determined by Market Price of Crude. I mean to say that if Indian Government enter into a Contract with Government of Iran for X Barrels of Crude Oil today, I am sure the Price will be decided based current NYMEX Rate of Crude Oil price which is approx USD 110 per Barrel.

I cannot find the sources, but here is how oil and gas imports are treated in bilateral agreement
. A quantity band is agreed upon.
. The price band is also fixed. Barring unforeseen circumstances both the volume and the price are adhered to.
. War, Sanctions and Natural Calamities are the only way to wriggle out of the agreement.

I had read that most of Indian crude is obtained at fixed long term prices, hence unaffected by price fluctuations. Where the current spot prices come to play is in fixing notional profit/loss by Indian companies with respect to the price paid by the Government for the crude and gas, and in extra quantities required in case of increase of demand.

[Jignesh]

Originally Posted by Aroy

I had read that most of Indian crude is obtained at fixed long term prices, hence unaffected by price fluctuations. Where the current spot prices come to play is in fixing notional profit/loss by Indian companies with respect to the price paid by the Government for the crude and gas, and in extra quantities required in case of increase of demand.

Exactly, that is why we have thread like this. There is a belief that (which may be a fact also) that Indian crude is obtained at fixed long term contacts & so spot pries don't effect.

But read the below article:
Oil firms hike jet fuel price by 3 per cent, petrol price unchanged : India News - India Today

It is clearly mentioned there that "Global gasoline prices (against which domestic petrol prices are benchmarked) have risen from USD 109 a barrel at the time of last revision in December to USD 134 per barrel"

Which mean that Retail Price of Petrol in India is benchmarked with Global spot (& future) prices. That means that even if Oil Companies are getting Crude at Lower Prices, the Retail Price will be determined by Global Spot Prices. Which is absolutely stupid & day-light robbery...

Thanks,

[simplyself]

Even if the crude is bought at fixed prices or otherwise, a fact is that almost 30 % of crude is generated from within the country. The quantum of loss which the OMC s say is notional loss for that fortnight/month average crude rate.

We talk about only petrol and diesel ( even though there is relatively little to crib about the fleecing) but the fleecing is actually more in auto LPG. Not one raised a voice on recent hike of auto LPG by Rs.7/litre, bringing it to Rs. 55 /litre. Imagine what would have happened if the petrol prices have been raised by Rs.7/litre and diesel prices even by the half of that.

Add to that the gas companies warn the govt that there is only a less than a week's supply on all India basis.

[ownerofazkaban]

Quoting an article in businesses standard, the weighted average cost of oil extraction is $11 a barrel. There is 40-60% speculation in today's world oil prices.

Very interesting data, just around this is the article on Nissan leaf emission comparison and how it looks clean in California due to clean energy, gasoline cars are better in Denver due to the coal based energy source... Called well-to-wheel analysis, this completely throws away all 'bs' about oil we hear in out country.

+1 to Goa govt.

[simplyself]

How long can this continue? The Govt keeps on increasing petrol prices but is afraid to touch diesel, LPG prices. The artificial low price of diesel and LPG ( either by way of taxation or subsidy) may pose enormous problems in future.

The LPG prices are justified by the Govt as it fears adverse reaction from women. But what about the commutes of men on their two-wheelers for their livelihood? A Cylinder, on an average, runs for 45 days. If, hypothetically speaking, petrol is taxed more than Rs.10 per litre to compensate the subsidy, and the fuel consumption is 1 litre per day, where is the benefit? Add to that, think of the diversion of domestic LPG cylinders to automotive, commercial and industrial uses. This causes quite huge losses to the LPG companies. And the pilferage cannot be stopped by random raids. It can only be controlled by rationalizing auto and commercial gas prices.

We are told that the buses account for about 12 % of total diesel consumption. Okay. Why should diesel for air conditioned Volvo/Isuzu/Mercedes Benz buses be subsidized? What about air conditioned compartments in trains ( where ever they run on diesel)?

Agriculture- related consumption is not too much dependent on diesel price. Overwhelming majority of pump sets run on electricity, tractors are used for tilling and for transporting the harvest. This doesnt consume huge amount. Had farming been diesel consumption intensive, then in a country where 70 % are still dependent on agriculture doesnt consume just 12 % of total diesel consumed. Even this can be taken care of by considering it when calculating and setting Minimum Support Price for a particular crop.

Power generators consume 8 %. Why should the consumption of malls, cell phone towers be subsidized? Only the 37 % consumption by trucks should be considered.

OMCs cry hoarse about losing Rs. 7 - odd per litre. Bringing down the taxes while charging prices aligned to international crude price should require a nominal increase/decrease from time to time. But this would call the bluff and leaves no scope for Govt to carry on false propaganda. Even better is fixing an amount as tax irrespective of the base price of the fuel should also be considered.

Post-budget, auto companies started investing considerably on ramping up diesel engine capacities. If what the govt says is true that cost of diesel is under-recovered, without a deterrent, wouldnt the under-recovered diesel be consumed more as more and more switch over to diesel cars? And wouldnt that mean there are more and more under recoveries in absolute terms? And 15 % consumption ( and growing) is no small matters when the bus transportation consumption is 12 %, railways 6 % and agriculture 12 %. Even the indutry and gen set use is pegged at 10 % and 8 % respectively.

Increase in petrol prices force users to turn to diesel cars, which further burdens the OMCs ( if what they say is true). Raising Auto LPG prices haphazardly forces many LPG users to turn to domestic, heavily subsidized LPG cylinders which inturn burdens the OMCs.

Add to that, not all crude we consume is imported. About 25 % is from our shores.

If a state govt can knock - off Rs.11 on a litre of petrol, cant the Union Govt do anything to rationalize the fuel prices?

[ottocycle]

Read the interesting news in economictimes.
Oil companies ultimatum to government: Cut taxes or face petrol price hike - The Economic Times

A possible hike of ~10 Rs will bring the PSU petrol prices closer or above to Shell petrol prices.

NEW DELHI: State-run oil companies have served an ultimatum to the government that they will raise petrol prices by Rs 9.6 a litre if excise duty is not cut or they are not provided compensation for Rs 49-crore per day loss on fuel sale.

"We have been very patient, not raising prices since December despite our cost of production spiralling. But there is a limit to which we can borrow money and produce fuel for the country," Indian Oil Corp Chairman R S Butola said here.

IOC, together with Hindustan Petroleum and Bharat Petroleum, is losing Rs 49 crore per day on petrol sale alone. They are losing another Rs 573 crore every day on selling diesel, domestic LPG and kerosene below cost.

Butola said oil PSUs in the first 15 days of April lost Rs 745 crore in revenue on petrol, whose pricing was freed from the government control in June 2010. But rarely have the product prices moved in tandem with cost as oil companies bowed to government diktats.

"We have suggested that the government should temporarily end deregulation and give subsidy to make up for the difference between cost of production and sale price. Alternatively, the government can cut the Rs 14.78 excise duty it collects when a consumer buys one litre of petrol," he said.

The states also levy VAT or sales tax ranging from 15 per cent to 33 per cent (Rs 10.30 a litre to Rs 18.74 per litre), which too can be cut to avoid a price hike.

If the suggestions are not accepted "we would have no option but to increase the price of petrol by Rs 8.04 per litre (excluding state levies) with immediate effect", he said. After including 20 per cent VAT, the increase in Delhi will come to Rs 9.60 a litre.

[pratheekkunder]

I am not sure how they calculate the prices but i am sure Macro Economics does come into picture whenever they increase or decrease fuel price in the country.

[msdivy]

IOC announced net-profit of Rs 12,670.43 crore for the quarter ended March 31, 2012, a 224 percent YoY increase from Rs 3,905.16 crore in the year-ago period.

Is this just normal business of an oil company or is IOC being benefited from Govt policy? Govt being the biggest shareholder in these oil companies will have plenty of dividends.

Source: Indian Oil net profit up 224% at Rs 12,670 crore, beats estimates - The Economic Times

[Aroy]

A profit of 12K on 412K crores around 3%, not a really large sum as far as profits go.

What is interesting, is that inspite of all the noise about "going bust" due to "under recovery", they have made a profit

[Jignesh]

Originally Posted by Aroy

What is interesting, is that inspite of all the noise about "going bust" due to "under recovery", they have made a profit

Hello Aroy,

Not only IOC, but BPCL has also put up robust Quarter 4 numbers.

The question is these Oil Marketing companies were literally crying since last three months stating huge losses in Sales of Petroleum products.

Now Petrol prices are just increased last month which means that between February 2012 & March 2012 (which accounts for 67% of Quarter 4) they have made heavy losses. Then how come these companies have posted profit figures for same period.

Something is fishy here. Probably general public is kept in dark, or their accounts are fudged (which will not be the case, given the international auditors & investors) or there is organized day-light robbery going with full-support from government.

Thanks,