It may be too early to expect a drop in prices at the petrol pump, but the Centre?s plans to revise India?s basket of crude imports could spell improved profitability for the domestic oil sector, along with a fall in the country?s oil import bill. This would clearly mean less pressure on the government to provide subsidies by way of oil bonds for under-recoveries by oil marketing companies.

The government is planning to revise the ratio of sweet (or, low sulphur) and sour (high sulphur) grade of crude oils in the Indian basket of crude oil from the prevailing 40.2:59.8 to 38.6:61.4. This comes as a result of the improved capability of Indian refineries to process higher quantities of sour varieties of crude oil.

Once implemented, the price of the Indian basket of crude oil will become cheaper as sour crude is priced lower than sweet crude by almost $4-5 a barrel. This will also result in better margins for Indian refineries, thereby improving their bottomlines.

Crude oil is classified as ?sweet? or ?sour? depending upon its sulphur content. Sweet crude has less than 0.5% sulphur content compared with sour crude. Some of the well-known varieties of crude oil are Brent (sweet), Dubai (sour), Nigerian Bonny Light (sweet), West Texas Intermediate (sweet), Urals-Commonwealth of Independent States (sour) and Suez Blend (sour).

At present, the Indian basket of crude oil comprises Oman-Dubai sour grade crude and Brent sweet crude in the ratio of 40.2:59.8.

The country?s largest importer of crude oil, Indian Oil Corporation (IOC), has already taken up the case of revising the ratios of sour and sweet crude in the Indian basket of imports. This followed a communication from the petroleum ministry?s technical wing, the Petroleum Planning & Analysis Cell on the percentage break-up of high and low sulphur crude oil processed by Indian refineries in 2006-07.

According to the cell, the high sulphur crude oil (imported) that was processed by Indian refineries stood at 61.4% (by weight), against 38.6% of low sulphur variety of imported and indigenous crude.

IOC?s calculations in this regard, for the five-month period of April-August 2007, indicate that the new ratio would lower the price of the Indian basket of crude oil by almost 12 cents.

The improvement in processing high sulphur grade crude in 2006-07 was the result of the expansion of IOC?s Panipat refinery from 6 million tonne per annum to 12 mtpa, as well as the commissioning of Essar Oil?s 7.5 mtpa refinery at Vadinar. Both the refineries have carried out technological improvements to refine both sour and heavy varieties of crude oil.