Now, Oil Cheaper Than Water

By Kajol Singh

Black gold has lost its sheen. What a litre of petrol or diesel costs oil majors now is less than the price of a bottle of packaged water you buy.

Back-of-envelope calculations show that a litre of petrol costs about Rs 11 and diesel about Rs 13, excluding transportation and other sundry charges etc. In contrast, you pay between Rs 12 and 15 for a one-litre bottle of water. Here's how the arithmetic goes: A barrel of crude oil contains about 190 litres. At $38 a barrel, the current price in the international market, each litre of crude works out to Rs 10, taking the exchange rate at Rs 50 to a dollar. On an average, approximately 28-29 litres of petrol and 85 litres of diesel are refined from each barrel of crude.

Admittedly, this figure can vary according to the type of crude being processed and the technology deployed in a refinery. So how much would the price of a litre of motor fuels be after incurring the cost of refining, if there were no other charges?

The calculation is so mind-boggling that sometimes even executives of oil marketing companies get bogged down by the myriad Central and state
taxes -- levied at incremental rates --and complex charges such as 'freight equalisation levy' and dealer margins etc. Such levies put together make up 45-55% of the sale price of the products.

So if petrol costs over Rs 45 a litre in Delhi, taxes and levies make up about Rs 22 and another Rs 12 constitutes the oilmarketing firms' profit margin. That leaves a basic cost of about Rs 11 per litre. Similarly, at Rs 32 a litre -- the Delhi price of diesel --the actual cost can be taken as Rs 13 as the companies are making a profit of almost Rs 3 a litre. These calculations are admittedly extremely simplistic and do not take into account other products such as kerosene, jet fuel, cooking gas, naphtha etc that are produced along with motor fuels and have a bearing on the final cost of each product. However, there won't be a big difference between these figures and the figures worked out by the industry. With crude projected to slide further in the coming days as the global slowdown gets a firmer grip on industry and pushes demand further down, the obvious question this raises is: When will our pump prices go down further?

HNN has repeatedly said this will happen just before the elections are announced.