In a landmark development in India's oil & gas sector history, the empowered group of ministers is believed to deregulate fuel prices in the second week of June, 2010. In India retail fuel prices had been administered by the central government so as to keep the end consumers safe from the uncertainties of the global crude oil price fluctuations.

Fuelled by deregulation regime in oil pricing mechanism in India, public sector oil marketing companies have been trading with upbeat mood on the bourses over past few trading sessions.

However, the administered price policy had left government burdened with heavy deficits arising from the fiscal assistance to the public sector oil marketing companies, which faced huge losses due to international oil price fluctuations.

A member of the Planning Commission of India, Kirit Parikh, who recommended a complete decontrol of fuel prices, is propagating freeing up of petrol and diesel prices and let free market forces takeover. As he hinted recently, the Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee is scheduled to meet on Monday, 7 June 2010, to discuss deregulation of fuel prices. The Parikh Committee had put forth the recommendations to the central government about the price decontrol. The formation of an EGoM itself is an indication to bring serious reforms in fuel pricing in India.

The public sector oil marketing companies including, Indian Oil Corporation (BOM:530965), Hindustan Petroleum Corporation Ltd (HPCL) (BOM:500104) and Bharat Petroleum Corporation Ltd (BPCL) (BOM:500547) cheered the latest development as the stocks of the companies witnessed increased buoyancy on the Indian bourses over past few trading sessions.

Oil retailing majors had been on a spree on the news of proposed deregulation. IOC had outperformed the market over the past one month till 2 June 2010, spurting 19.92% compared with the Sensex's 4.65% decline. It also outperformed the market in past one quarter, rising 13.31% as against 0.18% fall in the Sensex.

Meanwhile, HPCL had outperformed the market over the past one month, soaring 15.80% compared with the Sensex's 4.65% decline, while in past one quarter the stock prices jumped by 7.93% as against 0.18% fall in the Sensex. BPCL had surged by 11.25% outperforming the market over the past one month. The stocks had gained 6.42% in past one quarter as against 0.18% fall in the Sensex.

In a latest interview with a news channel, NDTV, Parikh had categorically informed that current government policies are not viable to reduce the impact of rising crude prices on the government's finances.

Parikh said, It's not important to raise prices as much as it is to deregulate price of petrol and diesel. And I think today, we are in a fortuitous circumstance. International crude prices have come down and we have suddenly got Rs.67,000 crore bonanzas from the 3G auctions.

According to him, the losses of state-run oil companies might reach to as high as Rs.1 lakh crore if crude oil prices spiral to USD 90 per barrel. However, currently, global oil futures are hovering close to one year low levels of USD 66.11 per barrel; hence analysts see least necessity of an immediate increase in retail petrol and diesel rates.

India Energy