With the recent announcement by Government of India to reduce subsidies slowly and move towards market determined prices of oil, the Petroleum Minister announced that state supported oil companies are losing millions of money everyday.
India is 7th largest importer of oil. But India also meets 40% of its demand from domestic production. Besides, ONGC sells crude to government at some discount. Now think about it.... the oil companies claim they buy 100 barrels of crude at international prices, lets say 80 dollars per barrel. That is 8000 dollars. But in reality, they buy only 60 barrels at international prices and rest 40 are bought in domestic market. I am not sure whats the price in domestic market, but it cant be 80 dollars per barrel. Assume it is half the price. The total cost to oil company is (60*80 + 40*40) = 6400 dollars. The oil companies are showing notional loss of 1600 dollars, though in reality, it is not incurred.
Any comments?
