- State fuel retailers lose about Rs 5/litre on petrol and Rs 23/litre on diesel amid high crude prices
- Brent crude prices surpassed $100 per barrel due to US-Iran tensions and supply concerns at Hormuz
- India imports over 88% of crude, making it vulnerable to rising global oil prices and trade deficit risks
State-owned fuel retailers are facing a sharp squeeze on fuel margins as crude oil prices climb above $100 a barrel amid escalating US-Iran tensions. Analysts estimate that retailers are currently losing around Rs 5 a litre on petrol and Rs 23 a litre on diesel, while pump prices remain unchanged.
"With escalation in hostilities between Iran and the US, Brent prices have crossed the $100/barrel mark today and the Indian crude basket is at ~$109/barrel," said Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA Ltd.
"At the average price for September till date, marketing margins on petrol are negative Rs. 5/liter and diesel at negative Rs. 23/liter," he added.
Domestic LPG was also facing an under-recovery of Rs 200 per cylinder.
Brent crude rose about 2.5% to above $100 a barrel on Wednesday, while US West Texas Intermediate approached $95.
The latest surge has been driven primarily by fresh tensions in the Middle East amid the tit-for-tat exchange of fire between the US and Iran, and subsequent supply worries around the Strait of Hormuz.
India is particularly vulnerable to higher global oil prices because it imports more than 88% of its crude requirements. A prolonged rise in crude could increase the country's import bill, widen the trade deficit and put additional pressure on the rupee.
The Indian crude basket averaged $108.91 a barrel on September 8, while its September average stood at $102.11, compared with $90.19 in August and $82.04 in July.
With OPEC+ holding output steady and geopolitical risk still high, prices are likely to remain volatile through the coming months, said Rajeev Sharan, Head of Research at Brickwork Ratings. Costlier crude will squeeze margins in oil-sensitive sectors such as aviation, paints, tyres, chemicals, logistics and parts of FMCG.
"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 noted.
A sustained higher oil prices could also complicate the Reserve Bank of India's inflation and interest-rate outlook.
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"We expect it to hold the repo rate at 5.25% at its October 7 review and stay watchful. A tightening bias cannot be ruled out if Brent stays above $100 and feeds into broader inflation," added Sharan.
The impact on consumers, however, would depend in part on how much of the increase is passed through to domestic fuel prices and how long international prices remain elevated. Retail petrol and diesel prices have remained unchanged for more than three months, with the last revision on May 25.
The state-run oil companies had raised petrol prices by Rs 2.61 a litre and diesel by Rs 2.71 at that time. In all, petrol prices were raised by Rs 7.35 a litre and diesel prices by Rs 7.53 in four instalments.
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