Poll-bound govt plays safe, oil cos bear the loss

INSULATING TACTICS: As crude oil prices soar, Govt is passing on the subsidy burden to oil companies.

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New Delhi: Crude oil prices on Thursday breached the lofty $134 mark, indicating that a further hike may be on the cards soon. Though the poll-bound Government refuses to hike prices, oil companies are curbing supplies to cut losses.

Petroleum major Bharat Petroleum Corporation Limited (BPCL) started rationing fuel petrol pumps from Tuesday and other companies are expected to follow suit soon.

The soaring prices are being attributed to:

• Supply crunch
• Organisation of the Petroleum Exporting Countries’ (OPEC) reluctance to raise production despite pressure from the United States.
• China hoarding diesel for power generation in anticipation of a shortage during Beijing Olympics
• Falling value of dollar

Daryl Guppy, Founder & Director of guppytraders sees a strong resistance for the Sensex at the 18325 levels.

“Crude has this habit, this character of moving in bands of about $ 10-11 wide. Now USD 100 is the psychological support level; the first target beyond that was $ 114, the next target beyond that was $ 126,” he says.

“The current prices above that is resistance of the $ 126. So the upside resistance on oil is sitting at around $ 137-138 and a move above that will give a retest of $ 147-148. We are likely to see the move to $ 137-138 and retest support of $ 126. So, crude prices are still likely to continue moving higher,” he forecasts.

However, Indian consumers are yet to feel the pinch as the Government refuses to hike prices. Instead, it is passing on the subsidy burden to oil companies.

Consequently, Indian oil companies are on the verge of bankruptcy. Indian Oil, for example, is losing Rs 16.5 per litre petrol and Rs 23.5 per litre diesel that is sold in Delhi.

“Right now we don’t feel the heat because we are protected by the Government and insulated in many ways by the things that are happening outside India. But the question is how long can the Government afford to protect?” Chief Editor, Upstream, Narendra Taneja asks.

Even though the spiralling crude oil prices aren’t directly pinching Indian consumers’ pockets, they are not immune to its impact, with airline fares, food prices and cost of lubricants going up.

It is, indeed, only a matter of time before Indian market starts to feel the heat. With crude oil prices heading towards $ 200 dollars a barrel, be ready to pay over Rs 100 per litre of petrol.