New Delhi, November 06, 2023 : The Indian public may be spared fuel price hikes despite the war in West Asia stoking crude price volatility, two people aware of the matter said. State-run oil marketing companies (OMCs) are expected to absorb the higher costs, even as they face under-recoveries in selling fuel.
Concerns of major oil producers in West Asia joining the conflict have also given further impetus to India’s plans to ensure energy security and diversify supply sources, the people cited above said on condition of anonymity.
Brent crude prices on 3 November stood at around $85 a barrel, the same as a month ago. Prices rose to as much as $92.85 on 19 October, up from a low of $75 in May.
“Though the conflict has had a limited impact on oil prices, the price rise hasn’t been passed on to the customers. And this is unlikely to be passed on unless prices hit the ceiling in the coming days,” one of the two people cited above said.
“We are closely watching the situation,” the person added.
“The conflict has been contained in the Gaza Strip between Israel and Hamas. At the moment, it does not directly impact our oil and gas supplies. However, concerns will emerge if it turns into a regional conflict and other major West Asian players enter the scene,” the second person said.
“India has been already looking at diversifying its oil supply sources; it would continue in that endeavour to ensure energy security,” the person added.
Petrol and diesel prices have remained unchanged since May 2022, when the government cut excise duty. When international oil prices cooled to $75 earlier this year, prices were not reduced, helping OMCs reverse under-recoveries. However, with the rise in crude prices since then, OMCs have again witnessed under-recoveries.
The Indian basket of crude oil stood at $87.33 per barrel on 2 November, way above the lows of $74.98 per barrel average recorded in May. In September, it had surged to an average of $93.54 a barrel.
Last week, Union petroleum minister Hardeep Singh Puri said the arrival of Venezuelan oil should have a sobering effect on crude prices as India looks to source oil from the most affordable sources. Earlier in October, the US relaxed sanctions against state-owned oil companies in the South American nation.
India, the world’s third-largest oil importer, is also looking to source more oil from countries like Guyana, Canada, Gabon, Brazil and Colombia. It has also increased oil purchases from sanctions-hit Russia. In October, Russian crude accounted for nearly 35% of India’s oil imports, followed by Iraq at 21% and Saudi Arabia at 18%.
Spokespeople of the finance and oil ministries didn’t respond to emailed queries.
In its October market report, the International Energy Agency (IEA) cautioned that markets “remain on tenterhooks as the crisis unfolds.”
“The Middle East conflict is fraught with uncertainty, and events are fast developing. Against a backdrop of tightly balanced oil markets anticipated by the IEA for some time, the international community will remain laser-focused on risks to the region’s oil flows,” the report said.
Meanwhile, higher crude prices have not only put pressure on marketing margins but also raised their working capital requirements.
According to a report by JM Financial, OMCs’ earnings in the July-September quarter are expected to moderate from the record high of the April-June period due to the sharp impact on marketing segment earnings on account of higher international crude prices.
However, the second-quarter results are still expected to be robust, aided by strong gross refinery margins and significant inventory gains. according to the reports published in www.livemint.com .
“OMCs’ weighted average auto-fuel gross marketing margin has moderated to ₹3.3/litre in 2QFY24 from the record high of ₹8.8/litre in 1QFY24,” the report added.
Spokespeople for state-run OMCs Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd didn’t respond to emailed queries.
