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India may cut retail fuel prices for the first time in 20 months next week following a sharp plunge in crude oil prices, but a final decision will depend on whether Opec decides to reduce output. Although state refiners are resisting a cut, Oil Minister Murli Deora said the government was examining the option as a more than 50 percent plunge in oil prices in just three months had almost eliminated subsidies on petrol and diesel.
"We are assessing the situation. A decision will be taken in a week," he told lawmakers during a discussion on oil prices in parliament. Oil has fallen to $67 a barrel from a record $147 in July, putting pressure on the government to cut fuel prices, which were raised about 10 percent in June. A cut in prices may boost oil demand in India and lend support to the world market.
Deora later said India's decision would also depend on the outcome of Friday's emergency session of the Organisation of Petroleum Exporting Countries (Opec) to consider output cuts.
"It depends on the decision of the Opec meeting tomorrow," he told reporters outside parliament, without specifying how the any move Opec might make would affect the government's decision. Opec must not inflict pain on those suffering from the global economic crisis and may need more than one meeting to implement any supply cut, Opec President Chakib Khelil said on Thursday, but added that the cartel needs to balance the needs of consumers and producers in its output decision on Friday.
Deora said last week prices may be cut if the average price of crude oil processed by Indian refiners falls to $61 a barrel. India had cut fuel prices by 3-5 percent in February 2007, when the price of the Indian basket was $55.80 a barrel. Since then, petrol prices are up 18 percent, while diesel prices are up 14 percent.
The price of the Indian basket of crude oil fell to $61.47 a barrel on Wednesday, according to the latest available data. Indian state refiners, which sell fuel cheap to help the government contain inflation, are resisting moves to cut prices.
He said the burden of past "under-recoveries", or the gap between the state-set retail prices and market prices, had hurt state oil firms significantly. "In view of the substantial under-recoveries already incurred ... and the grave financial position and liquidity constraints suffered by them, a downward revision in the retail selling prices of sensitive petroleum products as this stage is not feasible," he said in the written reply prepared before the discussion in parliament.
Apart from the need to cut accumulated losses during crude oil's record run, the government also had to consider the impact of the rise of the dollar which raised the rupee cost of crude oil. India imports about 70 percent of the oil it consumes.

Copyright Reuters, 2008

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