Book Review: “Oil’s Endless Bid: Taming the Unreliable Price of Oil to Secure Our Economy"

Book Review: “Oil’s Endless Bid: Taming the Unreliable Price of Oil to Secure Our Economy"
Bloomberg, 24-May-2010
Review by James Pressley

With the NOC constantly in financial crisis because of elevated oil prices, it might be worthwhile to understand how the oil price is set in the global markets. This book argues that the price is a function of fund flows/asset allocation/trading rather than supply-demand imbalance.

Dan Dicker could be forgiven if he hooted in vindication as crude plunged 15 percent in the first week of May. He concluded long ago that petroleum prices have become “just nuts,” as he says in “Oil’s Endless Bid.”

Oil markets are defying the normal laws of supply and demand, he argues in this timely book, and a large share of the blame belongs to Goldman Sachs Group Inc., Morgan Stanley and other banks. A longtime floor trader, he brings valuable insights to bear on a contentious subject that affects us all.

Dicker spent 25 years trading crude, natural gas, unleaded gasoline and heating fuel at the New York Mercantile Exchange. Bit by bit, he saw Goldman -- “the devil to be feared,” he says -- and its Wall Street brethren muscle into a sleepy market that was once dominated by oil companies seeking to hedge the risks of physical assets.

Soon a flood of “dumb money” from investors was gushing into funds pegged to the Goldman Sachs Commodity Index, he says. This high tide of cash, totaling billions of dollars, exerted an upward price pressure on oil that burdens American business and threatens to derail a U.S. economic recovery.

“We are all invested in oil, whether we like it or not,” he writes.

‘Peak Oil’

Dicker understands the prevailing wisdom about high oil prices yet remains unimpressed. Has he noticed how the rise of China and other emerging nations has driven up demand? Yes, he has. Is he ignoring evidence that the planet will one day run out of cheap, easily tapped black gunk? No, he’s not.

He says he believes in “peak oil,” the theory that petroleum production will inevitably peak, plateau and decline. Yet when he examines this and other explanations for recent energy-price spikes -- a falling dollar, for example -- he concludes that they amount to “a bad alibi.”

His argument, brutally compacted, goes like this: Oil today is overpriced, driven ever higher by the new flow of money funneled through investment banks, energy hedge funds and exchange-traded and index funds. Feeding the frenzy are bets from the same kind of American investors who moan about paying almost $4 a gallon to fill up their SUVs.

This new dynamic has led to wild fluctuations, Dicker says. Remember how oil surged in 2008 to more than $145 a barrel in July, only to plunge to less than $34 by late December?

“Nothing proved a speculative bubble more convincingly than the rapid price collapse we saw then,” he writes.

‘Assetization’

In swaggering prose, Dicker marches us through momentous changes that began rocking oil markets a decade ago. Chief among them is “the assetization of oil,” his infelicitous term for new instruments -- think commodity index funds --that make investing in petro prices as easy as buying stocks.

Dicker frowns on this. Just because everyone can now trade oil -- Mom, Pop and Aunt Erma, too -- doesn’t mean they should, he argues, determined to dissuade the very people who are most likely to buy his book. The notion that we can invest in oil as if it were a stock or bond is “the single most diabolical source of our pricing problem,” he writes.

Oil isn’t a stock or a bond. You don’t get dividends, interest or a way to reinvest profits and compound returns, he explains. All you get is a wager on oil prices -- a futures contract with a short shelf life. Your bet “self-destructs every 30 days,” as Dicker says.

Barrels on Doorsteps

Many people, heeding the growth of emerging nations, peak- oil arguments and the upheaval in Libya, are betting oil will go up. Being accustomed to stocks, they want to buy and hold. The only way to do that, unless you want a contract for 1,000 barrels of oil delivered to your doorstep, is to roll your position over by retiring an old contract and initiating a new one with a later expiration date.

This may expose you to a tax liability, not to mention commissions and fees on two trades (for getting out and getting back in). Imagine, too, what happens when commodity index funds roll their positions all at once, as they do on certain days each month. This mechanical reset is called the Goldman Roll, after the Goldman Sachs Commodity Index. It winds up amplifying any fundamental arguments for higher prices, Dicker says.

Can this be fixed? Yes, says Dicker, though his solution would mean forbidding most individuals from trading oil (and handing some clout back to pros such as himself). If he had his way, commodity index investing would be banned, along with exchange-traded funds that engage in futures.

Nostalgia for “the good old days of oil trading” tinge this book, which is enlivened with memories of “standing shoulder to shoulder with another 120 sweaty, smelly traders.” Yet it’s the future, by this account, that may really stink.

Govt to readjust fuel prices after NOC clears its debts

Nepalnews, 8-Feb-08

Minister for Commerce and Supplies Rajendra Mahato Saturday promised that the government would review the prices of petroleum products in the domestic market in line with the prices of crude oil in the international market, according to media reports.

However, he was quick to add that the government will take this move only after the Nepal Oil Corporation (NOC), the sole supplier of petroleum products in the country, clears its outstanding debt.

While speaking at an interaction programme organised at Parsa district headquarters Birgunj, Minister Mahato also attributed the government’s inability to readjust the fuel price as per the international market value to huge debts of NOC.

Soon after the NOC clears its debt that amounts to Rs 16 billion, the government will readjust the domestic fuel prices in accordance to the prices of crude oil in the international market, he said.

Related news
Fuel prices cut nominally (2-Feb-09)

Fuel prices cut

Fuel prices cut
ekantipur, 26-Dec-08

Nepal Oil Corporation (NOC) on Friday reduced the prices of petroleum products for fourth time in three weeks. It cut price per cylinder of cooking gas by Rs 50. Now on, a cylinder of cooking gas will cost Rs. 1150 throughout the country except in the Tarai, where it will cost Rs. 1130.

The price per litre of petrol has been reduced to Rs. 80 from Rs. 85. Price per litre of diesel and kerosene has gone down to Rs. 59.50 from Rs. 60.50 in the Kathmandu Valley. Now on, domestic airliners will have to pay Rs. 85 for a litre of aviation fuel, which used to cost Rs. 90. For international airlines, per kilolitre of aviation fuel will cost US$ 1,000. Earlier, it used to cost US$ 1,200.

Fuel crisis to get worse: Stocks enough only for two days

Fuel crisis to get worse: Stocks enough only for two days
ekantipur, 28-Jul-08

The Nepal Oil Corporation (NOC), which has curtailed petroleum supplies citing that it has not been able to pay for adequate imports, has warned that its fuel stock has alarmingly shrunk and is just enough to support two day's demand.

“Our stock has dropped to 15,000 Kiloliters (KL), and of that that about 9,000 KL is dead stock which cannot be pumped out,” said NOC Chief Digambhar Jha, informing the Post that the corporation has no diesel stock at Thankot depot, and stock of petrol is also depleting fast.

The corporation officials attributed the problem to shortfall in imports in the past and further reduction in supply by the Indian supplier to 1,000 KL a day, which is a third of the country's daily demand.

“Despite seeking support from all quarters, we could not manage enough funds to import more than 50 percent of our requirements this month,” Jha said.

NOC records show the corporation, which released the final monthly installment to the Indian Oil Corporation (IOC) Monday, paid Rs 2.83 billion to the Indian supplier in July. To meet the domestic demand, it was required to pay Rs 5.44 billion.

As a result, the corporation has largely lowered supplies in the market, creating a severe fuel crisis in the country. That has closed down 90 percent retailing stations and affected vehicular movement.

According to the transport entrepreneurs' federation, the number of vehicles plying on the road has gone down to a third due to fuel shortage, while passengers have been are forced to travel packed in the few operating buses and three-wheelers (tempos).

Cautioning the government of the looming disaster, the corporation has requested the Ministry of Finance to facilitate an early release of Rs 700 million, which the government decided to give to it last week.

“The delay in the release of the promised funds has limited our import capacity,” said Jha. He added that the corporation has also sought the government to refund the value added tax (VAT) that it has been paying. Given that the VAT paid at import point is higher than that realized from retails due to import-sales prices differences, NOC has claimed Rs 840 million from the government for the last fiscal year.

“It is our due demand, and we have also asked the government to give it as soon as possible,” said Jha adding that consumers, already reeling under a fuel crisis, may face a still worse situation if the government did not act promptly.

Fuel crisis to get worse: Stocks enough only for two days

Fuel crisis to get worse: Stocks enough only for two days
ekantipur, 28-Jul-08

The Nepal Oil Corporation (NOC), which has curtailed petroleum supplies citing that it has not been able to pay for adequate imports, has warned that its fuel stock has alarmingly shrunk and is just enough to support two day's demand.

“Our stock has dropped to 15,000 Kiloliters (KL), and of that that about 9,000 KL is dead stock which cannot be pumped out,” said NOC Chief Digambhar Jha, informing the Post that the corporation has no diesel stock at Thankot depot, and stock of petrol is also depleting fast.

The corporation officials attributed the problem to shortfall in imports in the past and further reduction in supply by the Indian supplier to 1,000 KL a day, which is a third of the country's daily demand.

“Despite seeking support from all quarters, we could not manage enough funds to import more than 50 percent of our requirements this month,” Jha said.

NOC records show the corporation, which released the final monthly installment to the Indian Oil Corporation (IOC) Monday, paid Rs 2.83 billion to the Indian supplier in July. To meet the domestic demand, it was required to pay Rs 5.44 billion.

As a result, the corporation has largely lowered supplies in the market, creating a severe fuel crisis in the country. That has closed down 90 percent retailing stations and affected vehicular movement.

According to the transport entrepreneurs' federation, the number of vehicles plying on the road has gone down to a third due to fuel shortage, while passengers have been are forced to travel packed in the few operating buses and three-wheelers (tempos).

Cautioning the government of the looming disaster, the corporation has requested the Ministry of Finance to facilitate an early release of Rs 700 million, which the government decided to give to it last week.

“The delay in the release of the promised funds has limited our import capacity,” said Jha. He added that the corporation has also sought the government to refund the value added tax (VAT) that it has been paying. Given that the VAT paid at import point is higher than that realized from retails due to import-sales prices differences, NOC has claimed Rs 840 million from the government for the last fiscal year.

“It is our due demand, and we have also asked the government to give it as soon as possible,” said Jha adding that consumers, already reeling under a fuel crisis, may face a still worse situation if the government did not act promptly.

Fuel subsidies take a toll on Nepal economy

Fuel subsidies take a toll on Nepal economy
IHT, 30-Jun-08
By Nicholas Owen

Yogendra Raj Sharma, on a recent day, had been waiting in line for six hours at a service station in Katmandu to fill the motorcycle he uses to drive to work. "It's very bad," he said. "Without petrol I cannot get to work, so I have to spend my time here."

Ending the fuel shortages that have kept Sharma, a civil engineer, and thousands of other Katmandu residents waiting in line for hours is one of the main challenges facing the Maoist leader Prachanda, who is widely expected to head the next government following the resignation on June 26 of Girija Prasad Koirala as prime minister.

Nepal subsidizes the retail price of gasoline, diesel and other fuel products. But the state-owned Nepal Oil Corp., which has a monopoly over fuel procurement and distribution, cannot afford to keep selling at a loss.

As world oil prices rise, so do the company's financial losses. Officials have estimated these will reach a record 8.5 billion Nepalese rupees, or $131.8 million, by the end of the fiscal year on July 15, representing 10 percent of the government's budgeted tax revenue. In May, the company's monthly loss rose to 1.78 billion rupees, according to official estimates - equivalent on an annual basis to about 3 percent of Nepal's gross domestic product.

"Clearly it's not sustainable," said Alexander Pitt, the International Monetary Fund's representative here.

With official lending to Nepal Oil putting public finances under strain, Koirala's government raised fuel prices on June 9 for the first time since October. Retail prices for petrol, diesel, kerosene and liquefied petroleum gas were increased by 25 percent, 24 percent, 27 percent and 9 percent, respectively.

With that, and yet another loan to the company, the line at the filling station used by Sharma disappeared. Bus drivers, however, responded by blockading roads across Katmandu until the government agreed to raise regulated transport fares. Student groups protested against higher fares by burning tires and vandalizing vehicles.

Even after the price increases, the oil company will still be selling at a loss. Pitt, the IMF representative, said the price rise was a "positive step," but "it goes only some way towards resolving the crisis."

Because of its losses, the company cannot make regular payments to Indian Oil Corp., its sole supplier, which routinely suspends cross-border fuel shipments. As a result, Nepal Oil often imports less than half of the country's daily requirement of two million liters, or 530,000 gallons.

Pitt said the government's "ad hoc" subsidy policy was part of the problem. Instead of agreeing to regular payments to ensure regular supplies, it has waited until filling stations run out of fuel before stepping in with additional loans or price increases.

"If it was just fiscal losses that would be one problem, but it's not only that, it's the disruption that comes with it," Pitt said.

Fuel shortages are one of the three biggest constraints on business activity in Nepal, along with power cuts and labor disputes, said Rajendra Khetan, president of the Young Entrepreneurs' Council, a business lobby.

"It curtails the productivity of the industrial sector," Khetan said, and the higher prices for consumer goods that result from low productivity contribute to increasing wage demands by trade unions.

"There's a whole chain impact," Khetan said.

In the dry season, from October to April, when low water levels at hydroelectric plants often cause the state-owned Nepal Electricity Authority (NEA) to cut power supplies to factories, fuel shortages mean the lost power cannot be replaced by running diesel-powered back-up generators.

After recent consultations with Nepalese officials, the IMF's executive directors recommended that to end the shortages, the government should abolish fixed prices and "consider introducing an automatic pricing mechanism for petroleum products." But so far, the country's politicians have not proposed freeing prices to rise and fall with global trends.

Nepal's fuel subsidies are widely acknowledged to benefit mainly the relatively well-off, who can at least afford cars or motorcycles. Critics of the subsidies say that by canceling them, money could be used for improving basic services for the poor. According to budget figures, the oil company's expected annual loss represents 30 percent of the government's planned expenditure on education, and 70 percent of its planned spending on health care.

Communication is part of the problem, but implementation is a bigger problem, Pitt said. The company has failed to ensure that filling stations can buy fuel even after price increases.

"When there have been price increases in the past, they have not led to a visible improvement in the supply situation," Pitt said.

Fuel lines reappeared about a week after the latest price rise and fuel station owners went on strike, saying that the company was still not providing them with sufficient supplies.

Recently, Koirala's government tried a dual-pricing system, theoretically allowing some filling stations to distribute fuel at cost. It did not work - Nepal Oil was still unable to ensure supplies.

"You cannot have two prices," Khetan said. "The system has to be privatized."

The government took a cautious step toward doing that when it announced the price increases this month, saying that it would abolish the oil company's 30-year monopoly. But unless prices are liberalized and subsidies ended, private-sector participation in the fuel business is likely to be limited.

"If the price remains regulated at a low cost then there will be no incentive for the private sector to enter the market," Pitt said.

Deregulating prices is not something the country's politicians are prepared to consider. And in elections held on April 10, Prachanda's Maoists emerged as the largest party in the Constituent Assembly. The Maoists have not said how they will address fuel shortages but abolishing subsidies would likely be a step too far for a party that only signed a cease-fire ending its 10-year "people's war" in November 2006.

Fuel supply worsens, over 50pc vehicles remain off road

Fuel supply worsens, over 50pc vehicles remain off road
ekantipur, 16-Jul-08

The number of four-wheelers plying the capital's roads was reduced to less than half Wednesday as the Nepal Oil Corporation (NOC) sharply cut supplies amid a three-quarter drop in imports due to the lack of funds.

The cutback left commuters stranded at different corners of the Kathmandu Valley while many packed into the few operating buses and three-wheelers (tempos).

The NOC said it distributed 72,000 liters of petrol dividing the stock equally between private and institutional retailers. The quantity is a mere 40 percent of the normal daily requirement.

Likewise, the cash-strapped state-owned petroleum importer distributed 84,000 liters of diesel, which is less than one-third of the valley's daily requirement.

“The situation is very bad. We cannot distribute even half of the required amount of fuel,” said a senior NOC official, preferring not to be named. “Imports from India have gone down to a quarter of what we consume in a day, and we neither have the funds nor anyone to turn to for money to increase imports,” he told the Post.

Sharad Bhandary, general secretary of the Nepal Petroleum Dealers Association, said that only nine private dealers received petrol on the day. “Each received a maximum of 4,000 liters, and that's only enough to create anger and quarrels among consumers rather than satisfying the need,” he said.

Bhandary added that the corporation had not distributed even a drop of fuel to private dealers from Friday to Monday. On Tuesday, it had delivered 1,800 liters to the retailers.

“With that amount of fuel, we became confused over how to distribute it and manage the crowd,” he stated.

NOC officials, moreover, added that the situation could remain bad through this week as it would need a few more days to arrange loans from domestic financial institutions. “A couple of banks have agreed to provide fresh loans. But it will take about a week before we actually get the cash, as they are just closed of their books of accounts on Tuesday,” he said.

He informed the Post that the corporation has sought additional financial support of Rs 1.5 billion from the government. A request in this connection was forwarded to the Supplies Ministry earlier this week.

But officials said they did not expect any immediate decision on the matter as the current government was preparing to hand over charge to the incoming administration and might not take financial decisions at this late hour.

Fuel supply worsens, over 50pc vehicles remain off road

Fuel supply worsens, over 50pc vehicles remain off road
ekantipur, 16-Jul-08

The number of four-wheelers plying the capital's roads was reduced to less than half Wednesday as the Nepal Oil Corporation (NOC) sharply cut supplies amid a three-quarter drop in imports due to the lack of funds.

The cutback left commuters stranded at different corners of the Kathmandu Valley while many packed into the few operating buses and three-wheelers (tempos).

The NOC said it distributed 72,000 liters of petrol dividing the stock equally between private and institutional retailers. The quantity is a mere 40 percent of the normal daily requirement.

Likewise, the cash-strapped state-owned petroleum importer distributed 84,000 liters of diesel, which is less than one-third of the valley's daily requirement.

“The situation is very bad. We cannot distribute even half of the required amount of fuel,” said a senior NOC official, preferring not to be named. “Imports from India have gone down to a quarter of what we consume in a day, and we neither have the funds nor anyone to turn to for money to increase imports,” he told the Post.

Sharad Bhandary, general secretary of the Nepal Petroleum Dealers Association, said that only nine private dealers received petrol on the day. “Each received a maximum of 4,000 liters, and that's only enough to create anger and quarrels among consumers rather than satisfying the need,” he said.

Bhandary added that the corporation had not distributed even a drop of fuel to private dealers from Friday to Monday. On Tuesday, it had delivered 1,800 liters to the retailers.

“With that amount of fuel, we became confused over how to distribute it and manage the crowd,” he stated.

NOC officials, moreover, added that the situation could remain bad through this week as it would need a few more days to arrange loans from domestic financial institutions. “A couple of banks have agreed to provide fresh loans. But it will take about a week before we actually get the cash, as they are just closed of their books of accounts on Tuesday,” he said.

He informed the Post that the corporation has sought additional financial support of Rs 1.5 billion from the government. A request in this connection was forwarded to the Supplies Ministry earlier this week.

But officials said they did not expect any immediate decision on the matter as the current government was preparing to hand over charge to the incoming administration and might not take financial decisions at this late hour.

NOC warns of worsening fuel supply

NOC warns of worsening fuel supply
ekantipur, 7-Jul-08

The Nepal Oil Corporation (NOC) has warned that the long running fuel supply shortage can become worse as there is no concrete plan to address NOC's deepening financial crisis due to soaring global oil prices.
NOC officials told the Post that the supply situation has become more vulnerable as the corporation eyes losses of about Rs 1.30 billion for the month of July.

“The Indian supplier passed on the international crude prices of US$137 a barrel to Nepal in July 1. While this has further widened our financial gap, things could go really bad later this month,” a senior NOC official told the Post.

The state-owned petroleum import monopolist rang warning bells, as it has anticipated the Indian Oil Corporation (IOC) to pass on the international price of about US$ 145 per barrel to Nepal in mid-July.

Once that is incorporated into the domestic price structure, the retail prices of petrol and diesel would touch Rs 105 per liter each, kerosene will go up to Rs 95 a liter and liquefied petroleum gas (LPG) to Rs 1,600 a cylinder.

“That will widen NOC's losses to Rs 2 billion a month straight away,” said the source, elaborating that the corporation could fail to import even the existing volume of petroleum products from later this month.

The corporation is already importing less than half of the normal national requirement at present, which has left a majority of petrol pumps to be empty and made consumers queue for hours for a few liters.

Senior officials at the Supplies Ministry further said that the government was planning to release a fresh Rs 500 million to the ailing corporation within the next few days to step up its imports.

“However, we don't have a solid vision from the political leadership over how to balance the rising global oil prices with the increasing pressure to provide relief to the people,” said the official.

Meanwhile, NOC Monday instructed petroleum dealers to retail petroleum products at the government's fixed prices, which are slightly lower than that tabled by the Nepal Petroleum Dealers' Association (NPDA).

Issuing a letter to the dealers, the corporation even warned them of stringent actions if they failed to comply with its directives. “We will go to the extent of suspending operating licenses,” said the official.

If the dealers complied, the prices of petrol, diesel and kerosene would go down by about 75 paisa each from the existing retail prices. However, NPDA has so far refused to operate at the government's rates, saying that it would not generate enough returns to the dealers.

Severe fuel crisis looms large

Severe fuel crisis looms large
ArthaExpress, 6-May-08

The country is likely to witness a severe crisis of petroleum products again after the cash-strapped Nepal Oil Corporation slashed distribution of petroleum products by nearly 50 per cent in the capital.

NOC supplies manager Mukunda Dhungel said the Corporation headquarters had directed its Thankot depot to distribute only 410 kl of petroleum products a day to the dealers from Sunday, while the demand stands at around 800 kl.

“We had to take the harsh decision as we don’t have the money to finance regular import with the price of fuel surging in the international market,” Dhungel said.

Shortly after the CA polls on April 10, the state-run oil monopoly had slashed the supply of diesel and kero-sene to dealers by nearly 25 per cent. “Supply would go down further in the days to come if no immediate intervention is made to regularise the import,” Dhungel said.

An NOC source said the Corporation plans to import only 75,000 kl of oil this month as compared to 83,000 kl it imported last month.

The supply will keep on decreasing unless the government immediately came to its rescue — inject more money to cover for the ever-growing losses due to subsidies or hike in international prices, the source said.

“Nepali consumers would face unprecedented crisis, something beyond their imagination, within the next few days if the government did not take a bold decision immediately,” cautioned Shiva Prasad Ghimire, chairman of the Nepal Petroleum Dealers’ Association.

Dealers added that the customers had yet panicked as black marketeers and customers had been hoarding fuel for the past few months in the face of crisis. “But they will inevitably feel the heat within the next few days when the stock even in the black market finishes,” Ghimire added.

The Corporation could release only INRs 640 million to the Indian Oil Corporation, the sole exporter, on May 2. Going by the prevailing prices in the international market, Nepal needs to pay around INRs 3.57 billion each month if it is to ensure smooth supply.

The flow of oil had considerably improved in the run-up to the April 10 election, as the IOC had agreed to maintain a steady supply for the crucial vote as requested by Nepal government.

“Now the import depends on our capacity to finance it,” Dhungel said. On the other hand, NOC complains, as per the revised price of oil forwarded by the IOC on May 2, it would now incur a whopping loss of Rs 1.67 billion per month.

NOC and dealers maintain that it is high time that the government indulged in groundwork to hike the price rather than bleeding the exchequer to make up for the losses due to heavy subsidi-es, poor management of the corporation and leakages.

But it is likely to take a few more weeks before serious steps were taken to review the prices since the incumbent government is not taking the initiative and the new government appears at least a month away, stakeholders said.

Annual oil losses to touch Rs 8.5b

Annual oil losses to touch Rs 8.5b
eKantipur.com, 30-Apr-08
By Milan Mani Sharma

Monthly loss to hit Rs 1.5 billion NOC's import dwindles as oil loss soars At current prices, petrol costs Rs 87 a liter, gas Rs 1,500 per cylinder Maoists initiate petroleum trade study

The long-running apathy of politicians to revise the petroleum prices has inflicted a whopping oil loss worth over Rs 4 billion during the first nine months of the current fiscal year.

The figure is just an initial estimate, said Bachchu Kafle, deputy managing director of Nepal Oil Corporation, adding that it is the record loss the country has ever had to face in any year in fossil fuel trade. “It's a nightmare,” he told the Post.

But, the nightmare does not end here. Officials keeping track of the international oil prices said worse was still to come, as international oil prices for June delivery settled at US $117 a barrel on Wednesday.

“If the trend is any indication, the country is set to incur an additional oil loss of 4.5 billion over the next three months of the fiscal year, making the annual loss to around Rs 8.5 billion,” said a price expert at the corporation.

Domestic retail prices were set when crude was trading at US$ 94 per barrel in the international market. However, NOC is importing petroleum products at US$ 108 a barrel. “This difference has already cost the country and NOC, the state-owned petroleum import monopolist, a monthly loss of Rs 1.35 billion in April,” said the official. Since the crude prices have scaled upward till June and there is no sign of its easing in July, officials said the country's oil loss will only swell to an average of Rs 1.5 billion a month for the remaining three months of the fiscal year.

“The extent of the rise may vary for individual products, but at US $117 a barrel, the price of petrol will have to be raised to Rs 87 a liter, diesel to Rs 84, kerosene to Rs 69 and liquefied petroleum gas to Rs 1,500 a cylinder,” said the NOC pricing official.

In the present situation, wherein the corporation is already depending heavily on the government's loans for managing imports, further rise in losses is feared to cost to consumers heavy.

“If prices are not adjusted, the shortages will only return to stay. It will be a hopeless situation. The political leaders must make a prudent decision now,” said an official at the supplies ministry.

Failing to generate enough money, cash-strapped NOC has already fallen short on its weekly installment payments to the Indian supplier.

As a result, the Indian Oil Corporation has curtailed supplies by half to about 1,500 kiloliters a day at present. This has caused the queues to return to the refilling stations.