Oil hike likely as world prices soar

Record breaking international crude oil prices spark concern for local consumers as the Ceylon Petroleum Corporation (CPC) will purchase fuel at a much higher cost in March and April. International crude oil prices hit a high of US $111 per barrel on Thursday before settling a little below $110, mainly attributed to the interest rate cuts in the US and the weakening US dollar. The CPC, which purchases crude oil at a monthly average rate, will be forced to buy its crude at a higher cost than the $90 per barrel at which price it purchased crude oil in February.

CPC Chairman Ashantha De Mel told The Sunday Times that despite the worrying trend in the world market, domestic fuel prices will be controlled due to the various profits made by the CPC over the past few months.

He said that the CPC had received Rs.600 million in revenue due to futures hedging while an additional profit of around Rs.600 million from the refinery would help the CPC cut down losses of Rs.1.13 billion while subsidizing the rates at which diesel and kerosene should be sold.

Petrol consumers pay Rs.18 above the market price helping the CPC rake in Rs.750 million in profits while petrol consumers also play the dual role of subsidizing diesel and kerosene. The CPC loses Rs.11.47 per litre of diesel and Rs.15.50 per litre of kerosene while making a profit of Rs.18.55 on a litre of petrol. However, the consumption of diesel has sky-rocketed to as much as 145 million litres a month while petrol consumption is only 40 million litres causing even greater losses for the CPC.

The CPC purchases its fuel at an monthly average price which is bound to increase due to the rising international oil prices which Mr. DeMel said would be a huge increase from February.“Still, with the profits we have been making we will be able to keep the current prices unchanged,” he said.

However, he said that the trend in the international market shows that the crude oil prices could well rise above the $120 mark in the near future. Addressing a media gathering, Petroleum and Petroleum Resources Minister A.H.M. Fowzie said that the prices will not be revised until after the Sinhala-Tamil New Year in April.

He said the CPC would cover what losses it would make from keeping the current prices, through its refinery and hedging profits and would assess the situation in April.“We currently have some stock which we purchased at lower rates than the current prices and we will take a decision on whether to revise the prices after the New Year depending on the world market,” he said.

The CPC announced that it will be able to sell its brand of LP Gas at around Rs.200 cheaper than its competitors in the domestic LPG market.

Despite fervent protests by Laugfs Gas Pvt Ltd (LGPL), the CPC will take efforts to begin production as soon as possible as it has already ordered 10,000 cylinders while an additional 40,000 cylinders will be imported in two months. CPC Chairman Ashantha DeMel said that he is confident that the project will take off by May or June while stating that the profits of the LPG business will be put into further subsidizing fuel for domestic consumers.

The CPC announced that Rs.250 million had been invested in the project while its initial target would be to produce 10% of the domestic demand. LGPL currently purchases 30% of its base product from the CPC while the rest is imported with added freight charges.

With CPC entering the LP Gas market, LGPL will be forced to increase its prices to even higher than Shell Gas as it would be forced to import 100% of its product. However, with the CPC producing only 10% of the market demand and targeting 40% of demand in another three years, the bulk of the consumers may be forced to purchase gas at higher prices.