NEW DELHI: Even as crude oil prices in the international market fell to a seven-month low, Indian oil marketing companies (OMCs) are unlikely to reduce the fuel price in the domestic market anytime soon.
Industry experts are of the view that these oil companies will probably hold on to current prices for some time to recoup the large losses they incurred in recent months. Brent Crude Future, the benchmark of crude price in the International market, on Thursday, was trading at $88.94 per barrel (6.40 IST).
Brent Crude fell below $85 per barrel on September 7, 2022, the lowest since the Russia-Ukraine war began.
“Oil prices are up nearly $88 per barrel now. However, even if prices were to remain at $85 per barrel, OMCs would probably hold on to the current prices for some time in order to recoup the large losses they have incurred. At $85/bbl, there is scope for reduction in retail prices of Motor Spirit (MS); however in the case of high speed diesel (HSD) under-recoveries would continue owing to high crack spreads,” said Prashant Vasisht, vice-president & co-Group head - corporate ratings, ICRA Limited.
The fear of global recession, COVID-19 curbs in top crude importer China, and a strong US dollar are some of the reasons crude prices in the international market are climbing down. To stabilise the price, the Organization of the Petroleum Exporting Countries (OPEC) and their allies decided to cut output by 100,000 barrels per day in October. As per the petroleum ministry, Crude Oil Indian Basket as of September 7, 2022, is at $91 per barrel, in August it averaged $97.40, in July $105.49 and in June $116.01.
Gaurav Moda, India energy leader at EY, said there may be some moderation in domestic fuel prices in due course, not necessarily immediately. “Typically Indian OMCs are careful about price hikes, as well as reductions, in line with market dynamics. In most cases given they carry over three months of inventory, there is also a typical lag and smoothening or averaging out of impact from any major global price fluctuations. Based on this, it is indeed expected that there may be some moderation in domestic fuel prices in due course, not necessarily immediately,” said Moda. India is the world’s third-largest oil importer and it imports nearly 80% of its crude requirement.
Oil import from Russia was to fight inflation: FM
Finance minister Nirmala Sitharaman on Thursday said the increase in oil imports at discounted prices from Russia is a part of India’s inflation management strategy. The minister, while speaking at an event organised by the ICRIER, also said she respects Prime Minister Narendra Modi for his courage to get crude oil from Russia because they are willing to give discount.
Note:- The Indian basket of crude oil represents a derived basket comprising of Sour grade (Oman & Dubai average) and Sweet grade (Brent Dated) of crude oil processed in Indian refineries in the ratio of 75.62 : 24.38