$100 crude shock: Oil cos lose Rs 5/litre on petrol, Rs 23 on diesel as pump prices stay frozen

Indian fuel retailers are losing around Rs 5 per litre on petrol and Rs 23 on diesel, with retail prices remaining unchanged even as a fresh escalation in West Asia sent international crude prices above the USD 100-a-barrel mark, PTI reported on Wednesday.

The widening losses come as Brent crude, the global benchmark, climbed 2.5% to above USD 100 a barrel, while US West Texas Intermediate crude rose nearly 2% to around USD 95. Brent last crossed the USD 100 threshold on July 23.

Also read: India faces higher oil import costs as crude prices surge on West Asia supply risks


Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA Ltd, said the escalation in hostilities between Iran and the US had pushed Brent above USD 100 a barrel, while the Indian crude basket had risen to around USD 109.

"At the average price for the month of September till date, marketing margins on petrol are negative Rs 5 per litre and diesel at negative Rs 23 a litre and under recoveries on domestic LPG are at Rs 200 per cylinder," he told PTI.

The pressure on fuel retailers comes as petrol and diesel prices have been frozen for more than three months. Retail rates were last revised on May 25, when petrol was increased by Rs 2.61 a litre and diesel by Rs 2.71.

Those increases followed a broader revision in the second half of May as international oil prices rose amid the war in West Asia and disruptions to energy flows from Gulf countries. Across four instalments, petrol prices were raised by Rs 7.35 a litre and diesel by Rs 7.53.

India’s oil import bill surges

India, the world's third-largest oil importer and consumer, imports more than 88% of its crude oil requirements, making it particularly vulnerable to international price swings.

The country's crude oil import bill jumped more than 56% in April-July to USD 63.4 billion, from USD 40.5 billion in the corresponding period last year, according to data from the Oil Ministry's Petroleum Planning and Analysis Cell (PPAC).

Import volumes, however, were broadly unchanged at 81.9 million tonnes in the first five months of the current fiscal year, compared with 81.5 million tonnes a year earlier.

The Indian crude basket averaged USD 108.91 a barrel on September 8, according to PPAC. Its September average so far stands at USD 102.11 a barrel, against USD 90.19 in August and USD 82.04 in July.

The basket comprises sweet or low-sulphur Brent crude and sour grades, including Oman and Dubai, in a ratio of 77.81:22.19.

A sustained rise in crude prices could increase India's dollar-denominated import bill, widen pressure on the trade balance and weigh on the rupee. Higher fuel and energy costs could also feed into domestic inflation.

Vasisht said crude could climb further if the current geopolitical situation persists.

"If the current geo-political situation persists, crude oil prices could rise further given that several countries, including China, were tapping their strategic reserves for a significant proportion of their consumption and their return to the market could increase demand in a period of restricted supplies."

Also read: India's shift to biofuels will lead to energy security, says top PM advisor

Crude shock threatens wider economy

Rajeev Sharan, Head of Research, Brickwork Ratings, said Brent's latest move above USD 100 was being driven primarily by US-Iran tensions and supply concerns around the Strait of Hormuz rather than stronger demand.

"With OPEC+ holding output steady and geopolitical risk still high, prices are likely to stay firm and volatile through the coming month, easing only if tensions cool," he said.

He added that higher crude costs would squeeze margins in oil-sensitive sectors including aviation, paints, tyres, chemicals, logistics and parts of the FMCG industry.

"Dearer oil also adds to inflation risk and strengthens the case for the US Fed to sound hawkish, or even hike interest rates on September 16," he said.

For India, Sharan said, higher crude prices would mean costlier imports, a wider trade gap and a weaker rupee, limiting the RBI's room for further rate cuts at its October 7 review.

"We expect it (RBI) to hold the repo rate at 5.25 per cent and stay watchful. A tightening bias cannot be ruled out if Brent stays above USD 100 and feeds into broader inflation," he added.

(With inputs from PTI)