The public sector oil companies, Indian Oil, Bharat Petroleum, Hindustan Petroleum and IBP, are expected to take a hit of around Rs 2,000 crore (Rs 20 billion) this month as a result of the sharp increase in international crude prices.

Brent prices eased to $33.29 after touching a fresh one-year peak today. Supply concerns have increased with the Organisation of Petroleum Exporting Countries, which controls half the world's crude exports, planning to reduce supplies at a time when demand from China is rocketing. The average price of Brent (dated) this month is working out to a whopping $33.79 a barrel.

In January, the public sector oil companies lost Rs 1,500-1,800 crore (Rs 15-18 billion) as they were not allowed to raise domestic petrol and diesel prices despite a spurt in international prices following a severe winter in the West, which triggered greater demand for heating fuel.

February, however, proved to be much better and losses came down to Rs 1,200 crore (Rs 12 billion) as Brent prices started declining and averaged $30.83 a barrel, compared with $31.23 in the previous month.

But the spurt in prices in March has more than taken away the small gains made by the state-owned oil firms in February.

With the dismantling of the administered pricing mechanism in the petroleum sector in April 2002, the public sector oil marketing firms are allowed to sell petrol and diesel in the country at import parity prices.

But in reality the petroleum ministry has not stopped interfering in price fixation. The oil marketing firms have not been allowed to raise petrol and diesel prices in March because of the forthcoming general elections.

The prices of petrol and diesel were last raised on December 31, 2003, by Re 1 a litre, though the state-owned firms had asked for at least a Rs 2.50 a litre hike.

It is widely predicted that international crude prices will continue to rule high in the short term with Opec announcing a production cut from April and also due to the low stock position in the US. The prices can soften only if non-Opec oil producers step up production.