Crude prices Vs Pump prices
Everyone these days is baffled by the not so recent (immaterial though) fuel price hike by government, blaming government and Oil Marketing companies left and right. Being the guy in the Oil industry I feel very angry over the public response on this
issue. On the contrary my ex-Manager never felt so, he said "you need to educate the guy first and then if he commits mistake you have right to act tough". Going by the very same logic many people here in our country are still very much unaware of the rationale behind the proce hike.
Some background on the prices, mid last year when a Barrel of crude oil costed somewhere around 60-70$, the pump price set by the market was in tandem with international crude price. Suddenly the crude price started shooting towards north due many reasons, to say the least, Demand-Supply funda. Oil exploring companies went on increasing crude price, developing countries didn't reflect any low on demand, result, increasing supply with furthermore increased price. Its not only the masses who are to be blamed for the ever increasing demand, government also plays a crucial role, untill they keep a check on the prices, doesn't let people feel the pinch that international market is experiencing how would public realise.
Today the barrel of crude has crossed 145$, more than double of what it was an year ago during this time. And on the other hand have a look at the pump price at the retail stations in our country !!!. You can't keep this biased or disbalanced model
of pricing for long, afterall everyone is in the market for business, may be the tolerance limits are different for different firms. Had government followed the trend steadily with the crudem surprises could have been avoided along with check on
demand.
And also not to forget the pricing mechanism for the pump price, more than 50 % of the price is made up of central/state taxes and duties, government doesn't want to reduce these in order to bring down the pump price because in doing so they will
loose a major chunk of their revenues, and the irony is that Oil companies are blamed for the high prices (which are no where even near the break even price considering the current crude price). And even if governemnt do want to reduce the taxes and duties there will be clashes on central and state level, thanks to over political system.
This till part of the story I have not mentioned anything about the treatment that NOC(National Oil Company) and private Oil marketing companies get here. Even though so called liberal government's claim to be providing "level playing field" for the
Oil marketing companies but they subsidise only NOCs. And even after the subsidies NOCs have incurred humongous losses. Some serious rethinking is required at the Ministry level.
Coming to my company now, Shell. We at Shell are not going to step back from here in India. We are hopeful that things can't continue like this for long and ground conditions will change sooner than later. People keep on asking me, why is Shell increasing if you are loosing so much (from news : loss of 16-17 rs/lit on petrol and 28-29 rs/lit on diesel on current pump price of NOCs) ? First of all we are not following the pricing set by government, because we have almost stopped selling main grade fuel, we only sell Shell Branded Premium fuel and we are free to price it.
Secondly, Shell is investing here for long term, afterall its not any local company ;-), afterall the economy of the developing countries are on roll, so its the place to be in for all other majors in many different fields. And last but not
least, we at Shell have got the tremendous response from the customer here during the days when there was balance between crude price and pump price, customer used to come back running to Shell pumps because of our QQS (quality, quantity & service), and we are more than 100% confident to win back those valued customers when the market situations change. And in all markets where we are operating currently, we have registered our presence in both communities, i.e. competitors and customers.
So for the time being, no looking back, heading strong towards FUTURE :-)
issue. On the contrary my ex-Manager never felt so, he said "you need to educate the guy first and then if he commits mistake you have right to act tough". Going by the very same logic many people here in our country are still very much unaware of the rationale behind the proce hike.
Some background on the prices, mid last year when a Barrel of crude oil costed somewhere around 60-70$, the pump price set by the market was in tandem with international crude price. Suddenly the crude price started shooting towards north due many reasons, to say the least, Demand-Supply funda. Oil exploring companies went on increasing crude price, developing countries didn't reflect any low on demand, result, increasing supply with furthermore increased price. Its not only the masses who are to be blamed for the ever increasing demand, government also plays a crucial role, untill they keep a check on the prices, doesn't let people feel the pinch that international market is experiencing how would public realise.
Today the barrel of crude has crossed 145$, more than double of what it was an year ago during this time. And on the other hand have a look at the pump price at the retail stations in our country !!!. You can't keep this biased or disbalanced model
of pricing for long, afterall everyone is in the market for business, may be the tolerance limits are different for different firms. Had government followed the trend steadily with the crudem surprises could have been avoided along with check on
demand.
And also not to forget the pricing mechanism for the pump price, more than 50 % of the price is made up of central/state taxes and duties, government doesn't want to reduce these in order to bring down the pump price because in doing so they will
loose a major chunk of their revenues, and the irony is that Oil companies are blamed for the high prices (which are no where even near the break even price considering the current crude price). And even if governemnt do want to reduce the taxes and duties there will be clashes on central and state level, thanks to over political system.
This till part of the story I have not mentioned anything about the treatment that NOC(National Oil Company) and private Oil marketing companies get here. Even though so called liberal government's claim to be providing "level playing field" for the
Oil marketing companies but they subsidise only NOCs. And even after the subsidies NOCs have incurred humongous losses. Some serious rethinking is required at the Ministry level.
Coming to my company now, Shell. We at Shell are not going to step back from here in India. We are hopeful that things can't continue like this for long and ground conditions will change sooner than later. People keep on asking me, why is Shell increasing if you are loosing so much (from news : loss of 16-17 rs/lit on petrol and 28-29 rs/lit on diesel on current pump price of NOCs) ? First of all we are not following the pricing set by government, because we have almost stopped selling main grade fuel, we only sell Shell Branded Premium fuel and we are free to price it.
Secondly, Shell is investing here for long term, afterall its not any local company ;-), afterall the economy of the developing countries are on roll, so its the place to be in for all other majors in many different fields. And last but not
least, we at Shell have got the tremendous response from the customer here during the days when there was balance between crude price and pump price, customer used to come back running to Shell pumps because of our QQS (quality, quantity & service), and we are more than 100% confident to win back those valued customers when the market situations change. And in all markets where we are operating currently, we have registered our presence in both communities, i.e. competitors and customers.
So for the time being, no looking back, heading strong towards FUTURE :-)
posted by Ali Asgher Zakir at
7:37 pm
2 Comments:
Thanks for the sales pitch! But I don't get the point (precisely the audience you're trying to convince)
If its the end user...I think the everyone should forget about the educating the end user and just hike the prices to curb down the demand...which is in no way coming down...the % of end users who want to learn is tiny
I don't think your second point is justified...the point about breakeven levels and shit...why the hell should govt think about it? In that case govt should also allow the airline industry to hike the prices, the transport industry to hike the prices, which will result into the hike in subji-mandi prices and then you'll find yourself in a Zimbabwe like economy...everyone is bearing the losses and the oil company should bear it as well (perhaps the most of it)...
One thing which I think govt should have done long back was buying oil futures when it was trading at $60...if we're still buying in spot markets we're the fools no-one else...
Anyway good luck to Shell...I hope they survive the markets...and I like the optimism that the things will change "sooner than later" ;-)
Cheers!
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Anonymous, At
11:23 pm
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By
Anonymous, At
9:00 am
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