TOPIC

DEREGULATION OF PETROL PRICES & ITS IMPACT ON OIL COMPANIES

SHARE PRICES

PRESENTED BYVAISHALI LUNIA

OBJECTIVE OF THE STUDY

• DEREGULATION OF OIL PRICE AND ITS IMPACT ON OIL COMPNIES

• SHOULD WE DEREGULATE OIL COMPANIES.

• DEREGULATION OF OIL COMPANIES IS BENEFICIAL FOR LONG TERM INVESTMENT.

• BY THIS STUDY WE CAN ALSO FIND OUT INVESTMENT OPPOURTUNITY IN OIL INDUSTRY.

WHAT IS DEREGULATION

Deregulation is an act by which the government regulation of a particular industry is reduced or eliminated in order to create and foster a more efficient marketplace

The concept of deregulation covers:

a) Price decontrol; and

b) Removal of restrictions

DEREGULATION OF PETROL PRICE

DEREGULATION OF PETROL PRICE MEANS THAT THE GOVERNMENT WILL NO LONGER BE SUBSIDIZING PETROL PRICES.

THE PRICES WILL BE PURELY LINKED TO THE INTERNATIONAL CRUDE PRICES

DEREGULATION IS USUALLY ENACTED TO WEAKEN GOVERNMENT INFLUENCE AND FORGE GREATER COMPETITION

CALCULATION OF PETROL PRICES IN INDIA

If the cost price of petrol per litre is Rs 58.90, following is the break up of cost calculated by the government:-

 • Basic Price: Rs 28.93• Excise duty: Rs 14.35• Education Tax: Rs 0.43• Dealer commission: Rs 1.05• VAT: Rs 5.5• Crude Oil Custom duty: Rs 1.1• Petrol Custom: Rs 1.54• Transportation Charge: Rs 6.00• Total price: Rs 58.90

BURDEN OF TAXES

Taxes and duties continue to dominate the pricing structure for petrol and diesel. For petrol, an excise duty of 27%, sales tax of 17% and 1% custom duty accumulate to 45% of the selling price in Delhi.

WHAT ARE THE NEGATIVE EFFECTS OF SUBSIDY

One of the adverse effects of subsidies is market distortion, meaning the price of the commodity does not reflect its actual cost.

Today, irresponsible parties make illegal profits by purchasing diesel at subsidized prices and selling it at higher prices to the non-subsidised sector.

REASON FOR DEREGULATION

To stabilize and provide reasonable prices,

To encourage competition

To encourage investments, and

To remove product subsidies

MAJOR PLAYER INVOLVED IN DEREGULATION

GOVERNMENT

• NATIONAL ENERGY POLICY OFFICE (NEPO)• INTERNAL TRADE DEPARTMENT• PROVINCIAL AUTHORITIES

  STATE OWNED OIL COMPANIES

 • PETROLEUM AUTHORITY OF THAILAND (PTT),

BANGCHAK (BCP)

 

 

BEFORE DEREGULATION

Before the deregulation of oil, the government was essentially the police of oil prices. 

The government controlled how much oil was available and how much profit could be made.

This meant that oil prices may have been cheaper over some periods of time, but it also caused market imbalances since the government is an independent entity that does not have to compete with anyone.

In other words, supply and demand doesn't affect oil prices when oil is regulated centrally.

AFTER DEREGULATION

Oil deregulation led to oil prices that were affected by all the market forces just like any commodity.

This means that supply, demand and competition all affect oil prices in both positive and negative ways.

The positive is that competition always leads to cheaper products, but at the same time it also means that some entities within the oil business can artificially control oil prices when they have a large enough monopoly. 

PSU’S COMPANIES IN INDIA

THERE ARE FOUR PSU’S OIL MARKETING COMPANIES IN INDIA THEY ARE AS FOLLOWS :-

BPCL IOCL HPCL ONGC

THE TWO COMPANIES WHICH I HAD TAKEN TO SEE THE IMPACT OF OIL PRICES IN THERE SHARE

PRICES

BPCL & IOCL (PSU’S COMPANIES)

IMPACT OF OIL PRICE IN BPCL SHARE PRICES OF LAST 10 YEARS

06/04/2

002

07/01/2

002

10/01/2

002

11/01/2

002

12/01/2

002

16/01/2

003

03/01/2

003

04/01/2

003

26/04/2

003

31/08/2

003

12/12/2

003

15/06/2

004

11/04/2

004

20/06/2

005

06/05/2

006

30/11/2

006

07/06/2

007

06/06/2

008

29/01/2

009

27/02/2

010

17/10/2

010

16/01/2

011

0

100

200

300

400

500

600

700

800

BPCL

PETROL PRICE

BPCLPETROL PRICE

IMPACT OF OIL PRICE IN IOC SHARE PRICES OF LAST 10 YEARS

06/04/2

002

07/01/2

002

10/01/2

002

11/01/2

002

12/01/2

002

16/01/2

003

03/01/2

003

04/01/2

003

26/04/2

003

31/08/2

003

12/12/2

003

15/06/2

004

11/04/2

004

20/06/2

005

06/05/2

006

30/11/2

006

07/06/2

007

06/06/2

008

29/01/2

009

27/02/2

010

17/10/2

010

16/01/2

011

0

100

200

300

400

500

600

700

IOCL

PETROL PRICE

IOCLPETROL PRICE

FINDINGS OF THE STUDY• OIL PRICE IS DIRECTLY PROPOSTINATE TO SHARE

PRICE OF OIL COMPANIES.• DUE TO REGULATION OF OIL PRICE THE SHARE

PRICES OF OIL COMPANIES ARE NOT ABLE TO REACH AT THAT POINT WERE OIL PRICES SHOULD BE.

• AFTER DEREGULATION IT CAN BE ASSUMED THAT THE SHARE PRICE OF OIL COMPANIES WILL GET A HIKE.

• IT IS BETTER FOR LONG TERM INVESTMENT • THE VALUE WILL BE UNLOCK