Government-Owned Fuel Retailers Face Losses of Rs 5 per Litre on Petrol and Rs 23 on Diesel

State-owned fuel retailers in India are currently facing significant losses, with petrol prices down by Rs 5 per litre and diesel by Rs 23 per litre. This situation arises as international crude oil prices have surged above $100 a barrel due to renewed tensions in West Asia. Analysts reported that Brent crude, the global benchmark, increased by 2.5% to surpass the $100 mark, while US West Texas Intermediate rose nearly 2% to around $95.

India, the world’s third-largest oil importer, relies on imports for over 88% of its crude oil needs. The rising crude prices are expected to inflate the country’s import bill, impacting the trade deficit and the value of the rupee. Despite these increases in international costs, retail petrol and diesel prices in India have remained unchanged for over three months.

Retail Prices and Market Margins

Prashant Vasisht, senior vice-president at ICRA, noted that marketing margins for petrol and diesel have turned negative. Currently, petrol is at a negative margin of Rs 5 per litre, while diesel is at negative Rs 23 per litre. Additionally, domestic LPG is experiencing under-recoveries of Rs 200 per cylinder. The last adjustment to retail prices occurred on May 25, when petrol and diesel prices were raised by Rs 2.61 and Rs 2.71 per litre, respectively.

The crude oil import bill for India has seen a dramatic increase, rising over 56% to $63.4 billion from April to July, compared to $40.5 billion during the same period last year. Import volumes have remained relatively stable, with 81.9 million tonnes imported this year, slightly up from 81.5 million tonnes last year. The Indian crude basket averaged $108.91 a barrel on September 8, with the average for September so far at $102.11, compared to $90.19 in August and $82.04 in July.

Geopolitical Factors and Future Outlook

Rajeev Sharan, head of research at Brickwork Ratings, attributed the rise in Brent prices to tensions between the US and Iran, as well as supply concerns in the Strait of Hormuz. He indicated that with OPEC+ maintaining steady output and ongoing geopolitical risks, prices are likely to remain firm and volatile in the coming month. Higher crude prices could lead to increased costs for various sectors, including aviation, chemicals, and logistics, while also contributing to inflationary pressures. Sharan anticipates that the Reserve Bank of India will maintain the repo rate at 5.25% but may adopt a tightening bias if Brent crude prices remain above $100.

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