Friday / May 17.


ogNEW DELHI: Petrol became cheaper by Rs 1.09 per litre in Delhi from Friday after state oil companies slashed the price of the fuel for the first time since mid-April because benchmark gasoline rates in the international market dropped.


Companies, however, raised the price of diesel by 56 paise in Delhi, helping to reduce the gap between pump and market rates by about Rs 1.50 per litre and increasing the prospects of deregulating the fuel soon.


If the trend continues, diesel pricing could be freed from state control in three months, government and industry officials said. Prices of diesel sold to bulk consumers such as the railways and state transport companies at market rates have been reduced, IOCsaid in a statement.


“Since price of diesel in international market has also shown a downtrend, the selling price of diesel sold to bulk consumers shall reduce by Re 0.72 per litre in Delhi,” according to the statement.


LPG sold at market prices also became cheaper. “International prices of LPG also witnessed a downtrend during this period,” it said.


The selling price of domestic non-subsidised LPG was cut by Rs 2.50 for a 14.2 kg cylinder and that of commercial LPG by Rs 4 for a 19 kg cylinder at Delhi, with corresponding decreases in other states, IOC said.


Since January 2013, diesel prices have increased from Rs 47.15 per litre to Rs 58.4 per litre in Delhi, an addition of Rs 11.25 per litre over 18 months.


The cabinet allowed state oil companies in January last year to raise diesel rates in small monthly doses until its pump and market prices are matched. In the national capital, petrol will cost Rs 72.51 a litre compared with Rs 73.60 previously.


“Petrol prices would have been reduced by more than Rs 1.60 a litre but oil companies wanted to retain about 54 paise because the government did not allow them to raise petrol prices on July 15,” an industry source said.


IOC, Bharat Petroleum Corporation and Hindustan Petroleum Corporation have been empowered to fix prices of petrol since June 2010, but they informally consult the oil ministry before taking any pricing decision.


Global benchmark Brent crude oil fell 1% to $105.5 a barrel on Thursday. The government is closely watching international oil prices because a favourable trend would help it to introduce major oil sector reforms.


ET reported on July 23 that the oil ministry is preparing a proposal for the Cabinet to substantially cut oil subsidy and fix a definite subsidy-sharing mechanism for upstream firms such as ONGC and Oil India.


The country’s fuel subsidy bill was about Rs 140,000 crore in the previous financial year. Some industry sources said political tension in Ukraine and growing friction between the US and Russia could play spoilsport.


The US and the European Union said on Tuesday they would restrict the export of technologies for energy production to Russia.


“Indian investments in Russia, particularly of ONGC, will not immediately be affected and we hope that the tension would ease soon,” a government official with direct knowledge of the matter said.


ONGC owns Imperial Energy, which has oil assets in Russia. The company is also a partner in the Sakhalin-I oilfields.

(Source: The Economic Times, August 1, 2014)





NEW DELHI: Oil minister Dharmendra Pradhan told state-run oil firms to improve refining margins and manage petrol pumps better to withstand competition from the private sector.


The price gap between the administered and market price of diesel has narrowed significantly, setting the stage for a competitive market in a few months. Petrol is already sold at market rates.


In 2002, when state firms faced private competition, Reliance and Essar competed fiercely to grab 17% of the market in three years but subsidised sales by government companies from 2005 eliminated private competition. Pradhan is concerned that the average refining margin of state firms — Indian Oil Corporation ( IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) — is barely $4 per barrel, about half that of private refiners.


“India is a big market, and foreign investors are willing to invest here. Policy reforms may come, and the PSUs should shed their monopolistic thinking,” Pradhan said while inaugurating a two-day workshop on ‘integrated margin management’.


ET reported in February that global energy giant BP, which has already invested more than $8 billion in India, is preparing to storm the Indian fuel retailing market when state controls are gradually withdrawn.

(Source: The Economic Times, August 1, 2014)




NEW DELHI: Oil and Natural Gas Corp’s (ONGC) fuel subsidy outgo will rise by 4.5 per cent in April-June quarter to Rs 13,200 crore as Government raised upstream fuel subsidy burden.


Fuel retailers Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) sell diesel, domestic LPG and kerosene at government controlled rates which are lower than cost. The loss they thus make are compensated through a combination of government cash subsidy and upstream dole.


During April-June, the three fuel retailers lost Rs 28,690.74 crore on the three fuel. Of this, the upstream firms ONGC, Oil India Ltd (OIL) and GAIL have been asked to meet Rs 15,546.65 crore or 54 per cent of the under-recovery or revenue loss.


ONGC has been asked to chip in Rs 13,200.10 crore, official sources said. This is 4.5 per cent higher than Rs 12,622 crore it had paid in first quarter of previous fiscal.


OIL has been asked to provide Rs 1,846.55 crore while the share of gas utility GAIL has been fixed at Rs 500 crore. The Government is yet to announce its cash subsidy for the first quarter. Sources said out of the upstream dole, IOC will get Rs 8,107.21 crore, BPCL Rs 3,830.56 crore and HPCL Rs 3,608.88 crore.


Of the Rs 28,690.74 crore revenue loss in April-June, fuel retailers lost Rs 12,129 crore on domestic LPG, Rs 9,037 crore on diesel and Rs 7,524 crore on kerosene sold through PDS.


Oil firms are currently losing Rs 2.49 a litre on diesel, Rs 33.07 on PDS kerosene and Rs 449.17 crore on domestic LPG, they said adding at the current rate the three firms are likely to end the fiscal with an under-recovery of Rs 98,345.55 crore.


Sources said IOC lost Rs 15,328.34 crore on sale of the three products in Q1, HPCL Rs 6,620.01 crore and BPCL Rs 6,742.39 crore. Last fiscal, oil firms had lost Rs 139,869 crore on sale of diesel, PDS kerosene and domestic LPG.

(Source: The Financial Express, August 1, 2014)




NEW DELHI: Oil minister Dharmendra Pradhan on Thursday defended public sector fuel retailers against the federal auditor’s criticism over allegedly making windfall gains due to faulty pricing method, even as the government raised the fuel subsidy burden on explorers.


Pradhan said the three oil refining and fuel retailing companies had absorbed Rs 28,680 crore in losses on fuel sales between 2007-08 and 2011-12 audited by the Comptroller and Auditor General. The auditor’s report had said the companies had overcharged customers Rs 26,626 crore in the five-year by way of notional levies in the pricing formula. Inaugurating a workshop on margin management, Pradhan said the oil firms follow a pricing methodology for calculating retail price on the basis of virtual imports by adding customs duty, freight, insurance, ocean loss and wharfage charges to prevailing international price of petrol, diesel, cooking gas or kerosene.


ONGC’s subsidy outgo would rise by 4.5% in the April-June quarter to Rs 13,200 crore. OIL has been asked to provide Rs 1,846.6 crore, gas utility GAIL’s share has been fixed at Rs 500 crore.

(Source: The Times of India, August 1, 2014)




NEW DELHI: The government is formulating a policy package aimed at infusing life into 26,489 MW of gas-starved power plants. The plan includes partially revisiting the gas pooling proposal, which the UPA government conceptualised but later turned wary about, given the huge subsidy cost it entailed.


As per the new plan, some 10,382 MW of administered price gas-based installed power capacity, running at a very low plant load factor (PLF) for want of the fuel right now, would get pooled gas — at a price higher than the APM gas price — with an assurance that the cost of power from these plants above a threshold of R5.50 per unit will be subsidised.


As for the balance gas-based capacity, sources said, some 7,000 MW based on gas from the Krishna-Godavari Basin and another 1,800 MW or so sans any gas allocation right now could be offered a financial package. Relaxed norms for external commercial borrowings and trade credits, extension of commercial operation date — which would give flexibility in loan repayment — and an additional three years of moratorium and waiver of interests are among the likely components of the package.


In addition, further loan facility would be made available from Power Finance Corporation for these units.


The cost of the proposed subsidy for APM gas-based units and financial incentives would still be much lower than the R56,000 crore estimated to implement comprehensive gas pooling for the entire 26,489 MW capacity. The plan, if implemented, will benefit power plants of NTPC, Essar Power, Lanco, GVK and GMR, among others.


The pooling mechanism for power stations based on APM gas would work as follows: Gas from different sources — domestic and imported RLNG — will be pooled to minimise the impact on each user from the expensive varieties of the fuel.


The weighted average price of the pooled gas would work out to $10.48 per million British thermal units (mmBtu) for FY15 and $10.27 for FY16, and the corresponding figures for cost of generation of power would be R8.25/unit and R8.12/unit. (Even though APM gas (at $4.2/mmBtu) is cheaper than the pooled gas price, the plants are starved of gas due to the scarcity of the fuel). The subsidy from now to FY16 end (to keep the price of power to the consumer at R5.50/unit) is estimated at R5,677 crore, sources said.


“The idea is to implement gas price pooling starting August this year, and up to FY16 end. It needs to be cleared by CCEA (Cabinet Committee on Economic Affairs),” a senior government official working on the proposal told FE.


He added that the proposed package would help salvage capital investments to the tune of R1 lakh crore from becoming non-performing assets. Gas-based power capacity right now is heavily underutilised. While domestic gas production is stagnating, imported LNG is prohibitively costly at $11-14/mmBtu.


In May, against the total gas requirement of nearly 100 million metric standard cubic metres per day (mmscmd) for the power sector, the availability was only 26.43 mmscmd including 1.01 mmscmd of RLNG.

(Source: The Financial Express, August 1, 2014)




NEW DELHI: Output of eight crucial industries grew 7.3 per cent in June, the highest expansion after September 2013 and more than three times compared to just 2.3 per cent in May, official data showed on Thursday. This might augur well for the Index of Industrial Production (IIP) since these industries have almost 38 per cent weight in the index, feel economists.


Expansion of these industries had stood at just 1.2 per cent in a year ago period of June, 2012, which was also a factor in magnifying the growth in June of this year. Called core sector, these eight industries — coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity — had risen eight per cent in September, 2013 at aggregate level, the earlier highest figure.


In the first quarter of the current financial year, core industries expanded 4.6 per cent from 3.7 per cent in the year-ago period.


In June, electricity generation recorded a phenomenal growth of 15.6 per cent, more than double of 6.3 per cent in the previous month. It was closely followed by the cement sector, which rose 13.6 per cent against 8.7 per cent in the previous month. Coal production also rose 8.1 per cent against 5.5 per cent. Steel production went up by 4.2 per cent against contraction of two per cent in May.


Production of crude oil and refinery products remained range-bound. Natural gas production fell 1.7 per cent in June against a decline of 2.2 per cent in the previous month. There is no single month in at least a year when natural gas production rose, clearly showing the problems the sector is engulfed with including pricing policies of the government. After rising for previous two months, fertiliser production again slipped into contraction by one per cent. Since the core sector constitutes more than one-third of IIP, the industrial growth is also expected to be robust in June, data of which will come in August.


“Yes, IIP growth is expected to be strong. We expect close to five per cent growth in the index,” said Arun Singh, senior economist with Dun & Bradstreet India. IIP growth had stood at 4.7 per cent in May.


If IIP indeed grows by five per cent in June, it would the second month of high growth compared to previous months. The industrial growth was highest at 2.6 per cent in July in 2013-14. IIP contracted in seven months of the year.


However, there is no one-to-one relation with core industry and IIP growth. For instance, the core sector expanded just 2.3 per cent in May and IIP rose 4.7 per cent. On the other hand, core sector grew 4.2 per cent in April and IIP went up by 3.4 per cent. Singh attributed this to poor showing by the other 60 per cent of IIP, including capital goods, consumer durables and basic products.


Volatile nature of capital goods could be seen as hindrance to exact link between core sector and industrial growth.

(Source: Business Standard, August 1, 2014)




New Delhi: With CAG castigating state-owned fuel retailers for overcharging customers by Rs 26,626 crore in five years, Oil Minister Dharmendra Pradhan on Thursday defended the PSUs saying they had absorbed Rs 28,680 crore in losses on fuel sales in the same period.


The Comptroller and Auditor General of India (CAG) in its latest report stated that Indian Oil Corp (IOC), Hindustan Petroleum Corp (HPCL) and Bharat Petroleum Corp (BPCL) overcharged customers by Rs 26,626 crore from 2007-08 to 2011-12 by charging notional levies like customs duty on fuel they sold.


Speaking at a workshop on margin management, Pradhan defended the pricing methodology followed by oil firms of calculating the desired retail price in a manner as if the product was imported – adding customs duty, freight, insurance, ocean loss and wharfage charge to prevailing international price of petrol, diesel, LPG or kerosene.


This they do because, they import nearly 80 percent of their raw material (crude oil) need and pay import parity price for the oil they buy from domestic producers.


The retail price for diesel, LPG and kerosene has always been lower than cost and the difference has been met through subsidy support.


“Oil marketing companies in the same five year period had to absorb Rs 28,680 crore (as government subsidy and dole from upstream firms like ONGC was not enough to cover the cost),” he said.


Besides, they paid income tax of Rs 15,900 crore and dividend of Rs 9,284 crore to the government in 2007-12. After taking Rs 28,680 crore loss they absorbed, the cash outflow for them on these accounts totalled Rs 53,864 crore.


“Oil Marketing Companies (OMCs) do not incur bulk of these expenses (like customs duty) as majority of the products are processed in OMC refineries rather being imported,” CAG had said in its report.

Currently, there is no customs duty on crude oil while a 2.5 percent import duty is charged on inward shipment of petrol and diesel. During post part of the audit period, crude oil attracted a 5 percent customs duty, while a 7.5 percent import duty was levied on products.


“In financial terms, import related elements charged at refinery gate on regulated products produced in refineries over and above the FOB (or import) price during 2007-12 worked out to Rs 50,513 crore,” it said.


While there is no customs duty on crude oil, other costs like freight and insurance are incurred on import of the raw material.


CAG said the import related expenses on import of crude oil were estimated at Rs 23,887 crore.


“Thus, even after deduction of relevant expenses incurred in import of crude oil during 2007-12, OMCs ought to have benefited by Rs 26,626 crore,” it had added.

(Source: Zee News August 1, 2014)




New Delhi: Indian Oil Corp (IOC) will get Rs 8,107 crore from upstream companies in fuel subsidy support for the first quarter while Hindustan Petroleum Corp Ltd (HPCL) will get Rs 3,608.88 crore.


The Oil Ministry has fixed the subsidy payout by upstream firms like Oil and Natural Gas Corp (ONGC) and Oil India Ltd at Rs 15,546.65 crore for the April-June quarter.


Of this, ONGC will pay Rs 13,200.10 crore and another Rs 1,846.55 crore will come from OIL. State gas utility GAIL will pay Rs 500 crore, official sources said.


Fuel retailers IOC, HPCL and Bharat Petroleum Corp Ltd (BPCL) sell diesel, domestic LPG and kerosene at government controlled rates which are way below the cost. The losses they incur is compensated through a combination of government cash subsidy and support from upstream firms.


For the April-June quarter, the government has fixed upstream payout at Rs 15,546.65 crore.


Of this, IOC will get Rs 8,107.21 crore, BPCL Rs 3,830.56 crore and HPCL Rs 3,608.88 crore, they said.

(Source: Business Standard August 1, 2014)





NEW DELHI/MUMBAI: State-owned Oil & Natural Gas Corp and Oil India Ltd have submitted a joint bid worth about $1.5 billion to buy a stake in Murphy Oil Corp’s Malaysian oil and gas assets, sources directly involved in the process said.


Arkansas-based Murphy, which has interests in oil and gas fields in Malaysia, Vietnam, Indonesia, Brunei and Australia, has invited bids for a 30 percent stake in its Malaysian assets, Reuters previously reported.


If successful, ONGC, India’s largest oil and gas exploration company, will own a 20 percent stake in the assets, while Oil India would own the remaining 10 percent, said three sources involved in the process.


Two of the sources said that the bid value is below $1.5 billion, but a third source said the joint bid is preliminary and the final deal value may change depending on rival bids.


India’s state explorers including ONGC, India’s largest oil and gas exploration company, have been looking overseas as they struggle to boost the country’s energy security and arrest decline from local gas fields.


In June last year ONGC together with Oil India acquired a 10-percent stake in a deepwater gas field in Mozambique’s Rovuma basin for $2.5 billion. In August ONGC agreed to buy another 10-percent stake in the field from Anadarko Petroleum.


Malaysia is the biggest part of Murphy’s Asian portfolio, accounting for more than 45 percent of its total 2012 net production, according to the company’s website.


Murphy’s net oil and gas production from Malaysia was about 86,000 barrels of oil equivalent per day in 2013, with total proved reserves of 125 million barrels of oil and 406 billion cubic feet of gas, it said.


Earlier this month a source familiar with the matter said Japanese trading house Mitsubishi Corp had submitted a non-binding bid for the assets. Kuwait Petroleum Corp and Japan’s Mitsui & Co were among the other suitors considering a bid.


S.P. Garg, acting managing director of ONGC Videsh, ONGC’s overseas business arm, was not available for comment, while Oil India Chairman Sunil Kumar Srivastava declined to comment.


Murphy Oil did not respond to a request for comment.

(Source: The Financial Express, August 1, 2014)




NEW DELHI: Do you really need a subsidy support of Rs. 500 per month to run your kitchen or are you willing to opt out of the programme actually meant for the poor and the needy?


Following directions from the Narendra Modi-led BJP government and in order to ensure that subsidies on cooking gas (LPG) cylinders reaches out only to the poor and needy, state-owned oil companies — Indian Oil, HPCL and BPCL — are reaching out directly to affluent customers and asking them to give up subsidised LPG cylinders.


“Give up your LPG subsidy and be part of the nation-building movement to provide subsidised cooking fuel only to the needy,” are the messages being sent on your cellphones by oil companies.


Companies are also making use of social media sites such as Twitter and Facebook.


“The results of this campaign are encouraging and over 3,500 customers of Indian Oil, HPCL and BPCL (including employees of oil firms) have already responded and surrendered their subsidised LPG connections,” a senior oil ministry official told HT.


There are 160 million LPG connections in the country and the annual outgo on LPG subsidy alone is over Rs. 40,000 crore. A subsidised LPG cylinder costs Rs. 422 (in Delhi) compared to Rs. 920 for a non-subsidised cylinder.


As a decision to hike LPG prices has often led to protests with political ramifications, sources said the government has instead directed oil companies to make use of social media and digital services to reach out directly to customers who can afford to pay the market price for an LPG cylinder.

(Source: Hindustan Times August 1, 2014)




Pune: The stoppage of supply of natural gas to its plant at Taloja that has brought production of fertilisers to a halt since May 15, has hit the first quarter profitability of Deepak Fertilizers and Petrochemicals Ltd.


The Pune-based firm posted a net profit of Rs. 39.85 crore in the first quarter of the current fiscal against Rs. 42.73 crore in the same period of last year, translating into a 7 per cent decline year-on-year.


Due to growth in its trading operations, the company’s income from operations, however, grew to Rs. 945 crore from and Rs. 743 crore in Q1 2014, a rise of 27 per cent.


Fertilisers contribute 30-35 per cent to the company’s top line.


Addressing shareholders at the 34th AGM here, CMD Shailesh Mehta called the stoppage abrupt, sudden and discriminatory. “We have filed a writ in the Delhi High Court and are also in discussions with the (Petroleum) ministry, and we think the decision will be rethought,” he added.


Outlining growth plans in the years ahead, Mehta said that the company will invest Rs. 55 crore in a 30,000-mt plant for bentonite sulphur in Panipat. To be commissioned in late 2015, this facility will serve the markets of Madhya Pradesh, Haryana, Uttar Pradesh and Punjab.


The company is also investing Rs. 550 crore to double its NPK plant capacity to 6,00,000 mt through brownfield expansion that is now on at Taloja.


This enhanced capacity is expected to be in place latest by early 2016 and will enable the launch of complex fertilisers and fortification by micro nutrients such as boron, zinc and copper.

(Source: Business Line August 1, 2014)





Gulf Oil Lubricants India (GOLIL) was listed on Thursday on the BSE and NSE post the requisite approvals after it demerged from Gulf Oil Corporation. The demerger was aimed at unlocking the value of the lubricant business. In an interview with FE, Sanjay G Hinduja, chairman of Gulf Oil International (parent of GOLIL), said GOLIL will continue to outperform the industry by enhancing its distribution, investing in the brand and securing more OEM tie-ups. Excerpts:


Your thoughts on the business outlook for the sector.


The company has been growing in double digits for the last few years and we are expecting to continue the same growth pattern going forward.


What is your market share?


In the bazaar sector, we have a 7% market share at the moment. We are number 6 today and our goal is to be one of the top 3 lubricant brands in the industry in terms of volumes. The company will continue to outperform the industry’s growth by enhancing its distribution, investing in the brand & securing more OEM tie-ups. Further, this is in line with our global vision of being one of the largest independent downstream players in Lubricants & Speciality Chemicals in the world.


What are key challenges for the business?


We have challenges in terms of capacity; that’s why we are going for the second plant. The other challenge is foray into the rural areas; we plan to give a big push to our rural strategy. OEM tie-ups are key in this business and, in the next two weeks, we are going to announce a major OEM tie-up.


Do you have plans to list any other subsidiary?


At the moment no, but I’m sure if you see me in the next 18-24 months, another of our subsidiaries might be ready for listing.


Could we see some public issues of Gulf Oil Lubricants to raise more capital from the market?


In the foreseeable future, no. This is primarily because the company is generating cash and even 50% of the cash required for setting up the second plant will be raised from internal generation.


Could you elaborate on your future plans.


We are going ahead with a second plant in Chennai. We have acquired land and are going to start construction this year. The project cost is estimated to be R130-140 crore and the plant will have a capacity of 75,000 tonne per annum, the same capacity as our first plant in Silvassa.


What kind of revenues are you expecting, going forward?


Ebitda margin (earnings before interest, taxes and amortisation) in this business is in the region of 12-13%. In terms of top line, we are looking at a double-digit growth.


What are the kind of branding activities initiatives lined up this year?


You will see much more advertising on TV. The Gulf noise would be louder. Our association with Mahendra Singh Dhoni, our brand ambassador, and that with Chennai Super Kings will continue. Our focus would be on Motosports and cricket in India.


Any separate plans internationally?


Gulf Oil acquired Houghton International 18 months ago. It is preparing for a listing in America, hopefully towards the end of this year. So, that’s going to be another milestone for Gulf International.

(Source: The Financial Express, August 1, 2014)




Mumbai: Gulf Oil Lubricants India, the demerged lubricants business of Gulf Oil Corporation that was listed on BSE and NSE on Thursday, says it chose the “right time to unlock value”.


“The lubricants business has reached the Rs. 1,000-crore mark, achieved double digit growth, and is reporting healthy margins now. All the indications were there that this was the right time to unlock value, and let the company go on a separate fast-track journey,” said Sanjay Hinduja, Chairman, Gulf Oil International.


“With (the group’s) four main business operations – industrial explosives, lubricants, mining and infrastructure services— remaining within Gulf Oil Corporation, it was like a many-headed animal. We were not getting the right valuation,” he said referring to the group’s businesses prior to the demerger.


Besides, when you have different businesses within the same company, which are not synergistic with each other, it confuses the market. Analysts wonder if they have to track the lubes business, or the real estate business, Hinduja added. The aim is also to be a contender in the top three slots. “With the lubes business demerged, investors and analysts will now have to benchmark Gulf Oil along with the top three players here — Castrol, Tide Water and the newest Gulf,” added the Chairman.


The Hinduja Group company is also on track with its expansion project that entails setting up of a lubricants plant near Chennai. “For the second plant, construction will start this year in Chennai, where we are investing Rs. 120 crore. The existing capex is around Rs. 40 crore, at the Silvassa plant,” Hinduja said.


In Mumbai, to commence the day’s trading on BSE by striking the gong at the listing ceremony, Hinduja was accompanied by Ravi Chawla, MD, Gulf Oil Lubricants India. Chawla told BusinessLine That the listing will also bring more focus on the business, as well as resources. “With our strategies, we have become the fastest growing in this industry. Volume growth has been hardly 1 or 2 per cent, and was flat in the last two years, when we registered double-digit growth. We have gained market share in various segments that we are operating in.”


Post demerger, shareholders of Gulf Oil Corporation (GOCL) have been allotted one share in Gulf Oil Lubricants India for every two shares held in GOCL. Simultaneously, capital reduction and reorganisation in GOCL has been done by allotting one new GOCL share for every two old GOCL shares.

(Source: Business Line August 1, 2014)



LONDON: Brent crude oil slipped to around $106 a barrel on Thursday as higher Opec (Organization of the Petroleum Exporting Countries) output and disappointing demand in the United States outweighed tensions in the Middle East, Africa and Ukraine.


Opec pumped more oil in July than in June despite concerns that unrest in Africa and the Middle East could hurt production, a Reuters survey showed.


Gasoline stockpiles rose in the United States even though it is the peak driving season, raising concern over the outlook for demand in the world’s largest oil consumer.


Brent crude for September delivery fell 40 cents to $106.11 a barrel by 1040 GMT. Brent has dropped more than 5 percent in July and is on track to post its biggest monthly loss since April 2013.


US crude futures for September delivery dropped 75 cents to $99.52 a barrel, putting the contract on course for a 5.6 per cent fall on the month, the biggest since October.


“It (falling prices) clearly indicates that there is ample supply,” Hans van Cleef, senior energy economist at ABN Amro, told the Reuters Global Oil Forum.


The US contract hit a two-week low of $99.16 during the session after Energy Information Administration (EIA) data showed that US gasoline and distillate stockpiles rose despite a bigger-than-expected drop for crude.


Crude supply from the United States is increasing as exports reached 288,000 barrels a day in May, the highest since April 1999, EIA data showed.


The dollar held just below a 10-month peak against a basket of currencies after soaring on strong US economic growth data.


A stronger greenback raises the cost of investing in oil for holders of other currencies.


Oil prices have eased after hitting multi-month highs in June because of political tensions in the Middle East, Africa and Europe.


But traders are watching how sanctions on Russia over Ukraine will affect its oil exports.


“Russia needs strong foreign investment in its energy sector to be able to maintain, or even expand, its oil and gas production in the longer term,” van Cleef said.

(Source: Business Standard, August 1, 2014)




Indonesia’s light vehicle industry has come of age and is poised to become Southeast Asia’s largest sales market by the end of this year. However, automakers and vendors rushing in with big ticket investments need to take stock of a few challenges in the market.


Foremost among these is Indonesia’s political situation which, after a decade of stability, will soon be tested under the new leadership of president-elect Jokowi Widodo. Yet to be proven in national politics, Widodo will have to address a number of issues ranging from widespread corruption to propping up the economy.


An important decision facing the new president will be on fuel subsidies. While Widodo’s election campaign had promised to reduce and fully deregulate retail fuel prices over the next four to five years, real action on the ground is likely to prove more difficult (although not impossible).


History indicates that reducing fuel subsidies has always been sensitive and sometimes politically disastrous as has been evident in countries like India too. For instance, the combination of fuel subsidy cuts, inflation and high food prices led to the downfall of President Suharto in 1998. The situation now is possibly more under control since policy makers have been preparing the public for an increase in fuel prices as subsidies are lowered.


Despite the pain it may cause to the general public, it is critical for Indonesia to further cut its fuel subsidies which have been a huge burden on the national budget. In 2013, fuel subsidies accounted for 19.5 per cent of the total government budget and 2.1 per cent of the GDP.


The 2014 Budget includes about $20 billion worth of fuel subsidies. As a result, Indonesia’s Budget deficit is estimated at 2.5 per cent of GDP, higher than 2.38 per cent in 2013. The deficit also comes close to Indonesia’s set threshold of three per cent of GDP.


A possible increase in fuel prices is thus possible in the coming months, but we are not expecting a drastic impact of this on light vehicle sales since a 44 per cent price hike last year resulted in limited protests while its inflationary impact lasted about three months. Meanwhile, light vehicle sales in 2013 had grown 10 per cent to 1.11 million units. This growth is expected to be replicated this calendar with the light vehicle market projected to cross 1.22 million units. The volume through to May was up nine per cent to 486,000 units.


We believe the buying rush of the newly launched models and the Low-Cost Green Car models may be cooling down.


While the sales pace has been moderating, the underlying strength of the market appears to be intact, with falling inflation, steady interest rates, and solid wage growth supporting vehicle sales.


As for the negatives, the trade balance is slipping back into a deficit due to rising oil prices (read rising import bills) and falling exports. This has been a result of the government’s ban on exports of unprocessed minerals as well as soft global commodity prices and China’s sluggish demand. Also, the interest rate hikes last year appear to be having a delayed impact.


Going forward, Indonesia’s light vehicle sales are forecast to expand at a compounded annual growth rate of 6.8 per cent to near two million units by 2021. Positives include the country’s young and growing population, expanding middle class, very low vehicle density and an average annual GDP growth of 5.3 per cent in the next 15 years.


Undoubtedly, there are challenges to build a successful business in Indonesia, but its growth potential perhaps outweighs the risks in the market.


The writer is senior market analyst (ASEAN & India), LMC Automotive

(Source: Business Line, August 1, 2014)




The crude oil futures contract traded on the Multi Commodity Exchange has dropped over 3 per cent from its high of Rs. 6,273/barrel recorded on June 21. The 21-day moving average at Rs. 6,155 is posing a resistance to the rally in the contract.


The probability looks high for the contract to dip further to test Rs. 6,000 and Rs. 5,950 in the coming days. However, the broader Rs. 5,950-6,550 range still remains intact. There is no downside threat for the contract unless Rs. 5,950 is broken. Also price action on the chart since March suggests that an intermediate fall to revisit Rs. 5,950 support level is a common recurrence within the range before the contract rallies to test Rs. 6,550 – the upper end of the range. So traders with a medium-term perspective can continue to hold their long position with the same stop-loss at Rs. 5,940 and for the target of Rs. 6.400. Also a reversal from Rs. 6,000 or Rs. 5,950 can be considered accumulating more long positions.


MCX-natural gas: The MCX-natural gas futures contract has taken a pause and is consolidating within its overall down trend. Resistance is at Rs. 238 per mmBtu and support is at Rs. 227. An immediate breach of Rs. 238 looks less probable. So traders who have taken short position last week can continue to hold it. Retain the stop-loss at Rs. 242. Partial profits can be booked at Rs. 218 and the rest can be squared off at Rs. 200. Intermediate rallies to Rs. 238 can be used to accumulate more shorts. A break below Rs. 227 will result in the downtrend extending towards Rs. 218 initially and then to Rs. 200 there after.

(Source: Business Line August 1, 2014)


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