New Delhi: State-owned fuel retailers are losing Rs 5 on every litre of petrol they sell and Rs 23 on every litre of diesel, analysts said on Wednesday, after fresh hostilities in West Asia pushed international oil prices past USD 100 a barrel. That is the highest crude has been since July 23, when Brent last touched the USD 100 mark.
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Brent crude, the international benchmark, rose 2.5 percent to trade above USD 100 a barrel. US West Texas Intermediate (WTI) gained almost 2 percent to about USD 95. Behind both moves was the latest tit-for-tat exchange of fire between the US and Iran, which has raised tensions across the Middle East.
India is the world's third-largest importer and consumer of oil, and it buys more than 88 percent of the crude it turns into petrol, diesel and other fuels. That leaves it unusually exposed to swings in international prices. A sustained rise lifts the dollar-denominated import bill, analysts said, and can press on both the trade balance and the rupee.
Retail rates at the pump have not moved through the increase, so the higher crude cost is being absorbed by the retailers rather than the consumer. The result is losses on petrol, diesel and cooking gas.
Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings at ICRA Ltd, said Brent had crossed USD 100 a barrel on Wednesday as hostilities between Iran and the US escalated, with the Indian crude basket at about USD 109 a barrel.
"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 said.
Vasisht does not expect prices to have peaked. "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," he said.
Costlier crude can feed into domestic inflation through fuel, transport and other energy-related costs. How far that reaches consumers and the wider economy turns on two things: how much of the increase is passed through to domestic fuel prices, and how long international prices stay elevated.
Petrol and diesel prices have been on freeze for more than three months. The last change came on May 25, when petrol was raised Rs 2.61 a litre and diesel Rs 2.71. That was the closing instalment of a series of increases through the second half of May, made as international prices climbed on the war in West Asia disrupting energy flows from the Gulf. Across four instalments, petrol went up Rs 7.35 a litre and diesel Rs 7.53.
India's crude oil import bill rose more than 56 percent during April-July to USD 63.4 billion, from USD 40.5 billion in the same period a year earlier, according to the Petroleum Planning and Analysis Cell (PPAC) under the Oil Ministry. Volumes across the comparison barely moved, at 81.9 million tonnes against 81.5 million tonnes.
The basket of crude India imports averaged USD 108.91 a barrel on September 8, PPAC data showed. It is built from sweet, low-sulphur Brent and from sour grades carrying more than 0.5 percent sulphur, taken as an average of Oman and Dubai. The basket breached USD 100 earlier this month, and its September average now stands at USD 102.11 a barrel, against USD 90.19 in August and USD 82.04 in July.
Rajeev Sharan, Head of Research at Brickwork Ratings, said Brent's move back above USD 100 was its highest since late July, and that US-Iran tensions and supply worries around the Strait of Hormuz were driving it rather than any pickup in demand. On the outlook, he pointed to steady output from the Organization of the Petroleum Exporting Countries and its allies, the OPEC+ group.
"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. Costlier crude will squeeze margins in oil-sensitive sectors such as aviation, paints, tyres, chemicals, logistics and parts of fast-moving consumer goods (FMCG), he added.
Sharan also sees a read-across to the US Federal Reserve. "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, he said, costlier crude means a heavier import bill, a wider trade gap and a softer rupee, which leaves the Reserve Bank of India (RBI) little room to cut at its October 7 review.
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"We expect it (RBI) to hold the repo rate at 5.25 percent and stay watchful. A tightening bias cannot be ruled out if Brent stays above USD 100 and feeds into broader inflation," he added.
