Crude Oil Relief: OMCs Poised to Achieve Break-Even on Petrol and Diesel Rates, Implications for Retail Prices
Public sector refiners in India have reported staggering losses exceeding Rs 75,000 crore during the first quarter of the current financial year. Despite a potential break-even point for state-run oil marketing companies (OMCs) on petrol and diesel sales within the next week, they continue to face significant under-recoveries. Currently, these companies are losing approximately Rs 500 on each domestic LPG cylinder sold.
The ongoing financial strain is attributed to the processing of higher-cost crude oil purchased earlier, which is expected to keep profitability under pressure in the current quarter.
Impact on Fuel Prices
Global crude oil prices have recently dropped to their lowest levels in four months, nearing pre-war figures. Since May 15, retail fuel prices in India have risen by about Rs 7.5 per litre, following a significant delay after the onset of the US-Iran conflict. While private fuel retailer Nayara Energy has already reduced prices, state-run OMCs are not expected to follow suit immediately.
According to Oil Minister Hardeep Singh Puri, state-owned OMCs have incurred losses of Rs 74,781 crore from the sale of petrol, diesel, and subsidised LPG. These losses stem from selling fuel below cost for over four months. Industry estimates suggest that if crude oil prices stabilize around $75 a barrel, OMCs could start recovering these losses within the next six to twelve months.
OPEC+ Production Increase
OPEC+ has agreed to raise crude oil output by an additional 188,000 barrels per day for August, marking the fifth consecutive monthly increase since the conflict in West Asia began. Analysts believe this output hike will enhance global crude oil supplies, exert downward pressure on prices, and provide relief to major importing nations like India, which relies on imports for nearly 90% of its crude oil needs.
As of now, global benchmark Brent crude is trading around $72 a barrel, while the Indian crude basket has eased to approximately $67-68 a barrel. The increase in supply is anticipated to help moderate inflationary pressures and allow India to replenish its strategic petroleum reserves. However, much of the planned production increase has not yet materialized due to disruptions in energy shipments through the Strait of Hormuz, a critical transit route for crude exports.
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