Crude oil prices remained stable (–0.1% mom) in July as positive drivers led by (1) unexpected increase in growth rate for European manufacturing and services sector in June 2010 and (2) forecast of a severe Atlantic hurricane season which could bring disruptions to oil and gas operations in the US Gulf of Mexico, were more than offset by (1) higher-than-expected increase in crude oil inventory and (2) growing concerns on economic recovery in US. We expect crude oil prices to remain in the US$70-80/bbl range in the near term as (1) large OPEC spare capacity of ~6 mn b/d despite slippages in new projects and (2) high level of inventories will likely offset the increase in global crude oil demand. Natural gas price (Henry Hub) declined to US$4.6/mn BTU in the recent month versus US$4.8/mn BTU in June 2010.
Analysts estimate moderately lower marketing losses on auto fuels in August 2010 due to decline in global product prices. We compute marketing
margins assuming unchanged domestic prices for diesel at –Rs0.1/liter (versus –Rs0.4/liter in July 2010 and +Rs0.9/liter in FY2010) and for gasoline at –Rs1/liter (versus –Rs1.4/liter in July 2010 and –Rs2.9/liter in FY2010). We compute subsidy losses on LPG and kerosene to be Rs187/cylinder and Rs16/liter for August 2010 versus Rs227/cylinder and Rs16.3/liter in July 2010.
