The Indian basket of crude oil prices has increased to $22.74 per barrel at the end of February 2012 compared to $110.47 in January 2012 and $101.62 per barrel in February 2012 mainly due to tensions surrounding Iran.
EIA expects the price of West Texas Intermediate crude oil to average about $100 per barrel in 2012, almost $6 per barrel higher than the average price last year.
Based on recent futures and options data, the market believes there is about a one in fifteen chance that the average WTI price in June 2012 will exceed $125 per barrel, and about a one in fifty chance that it would exceed $140 per barrel.
For 2013, EIA expects WTI prices to continue to rise, reaching $106 per barrel in the fourth quarter of next year.
Duty Structure
Crude oil as well as Natural gas produced under NELP contracts is not liable to duties of Excise under the Central Excise Act, 1944.
However Rs 2500 per tonne is being charged as cess and Rs 50 per tonne as National calamity contingent duty (NCCD). Regards Custom duty it is nil. However it attracts Rs 50 per tonne as NCCD.
Industry Expectation
Expects extension of infrastructure status to exploration and refining activities for the purpose of 10-year tax holiday under Section 80-IA of the IT Act. Till now an undertaking, which begins commercial production of the mineral oil, is allowed a deduction of 100% of the profits for seven consecutive assessment years.
It is suggested that exploration and refining undertaking should be allowed deduction for 10 consecutive assessment years as against 7 years at present out of 15 years period.
i) Exemption from Minimum Alternative Tax (MAT) for Hydrocarbon sector
ii) Exempt Oil Industry from the applicability of Sections 234 B & 234C of the Income Tax Act, 1961 or at least a wider approximation factor be allowed for recovering interest on short payment of Advance Tax.
PSU Oil Companies are not able to derive the Advance Tax liability in advance leading to payment of interest u/s 234B and 234C and lodging of petitions for waiver after the assessments.
iii) Expects removal of National Calamity Contingent Duty on crude oil levied at Rs 50 per MT
iv) Expects exemptions from payment of service tax on input services used in petroleum operations
v) Petroleum Sector seeks full coverage of crude, MS, HSD, ATF & Natural Gas under GST
vi) Expects refund of service tax paid by E&P companies on the services consumed for exploration as well as production process.
Analysts/market expectations
Crude oil is trading at a very high price which itself makes O&G exploration activity attractive for players. Hence, GOI may not give incentive this time.
Stock to watch
ONGC, RIL, Cairn India, Oil India
Outlook
Crude oil prices has remained higher in last one year due to a stronger than expected increase in demand along with supply side issues arising from unplanned outages from OPEC and the unrest in MENA (Libya, Nigeria).
India imports almost three fourth of its crude oil requirement. Higher international crude oil prices situation is further aggravated by depreciation of rupee. Fuel prices (diesel, PDS kerosene and Domestic LPG) are decided by government of India.
As a result OMC are currently incurring daily under recovery of Rs 474 crore on sale of diesel, kerosene and LPG. Diesel under recovery is Rs 12.17, PDS kerosene is Rs 28.66 and Domestic LPG is Rs 439.
Upstream companies have to bear a portion of under recoveries of OMCs thus impacting their profitability. Industry expects clarity on subsidy sharing mechanism of under recoveries; However Budget may not be a platform for the same.
