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Over 80% of the oil transported through the Strait of Hormuz is consumed by Asia, of which China, India, Japan and South Korea account for around 65%.
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Crude oil prices also found support from the Iranian parliament approval of a proposal to close the Strait of Hormuz, one of the world’s most critical oil shipping routes,
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Amid rising Middle East tensions, the Indian refiners are currently witnessing 8-9 percent increase in shipping costs while there has been marginal impact on insurance rates, said an executive with an oil refinery on condition of anonymity.
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Higher crude prices squeeze Indian oil refiners as they have largely kept retail fuel prices unchanged in the domestic market despite volatility in the international market.
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A higher share of tougher or sour grade crude, which has higher sulphur content, would improve the refining margin of HPCL’s Vizag refinery to $12-14 per barrel from the current average of $8 per barrel.
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While inventory losses are expected to weigh on Q1 numbers, strong refining margins—especially in diesel and jet fuel—are likely to more than offset the drag, the brokerage said.
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India’s oil marketing companies on May 9 urged consumers against panic buying, assuring of sufficient fuel stocks to meet country’s energy demand.
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India’s oil marketing companies (OMCs) might not be able to cut prices, despite sliding crude prices, as high LPG under-recovery, inventory losses and weak gross refining margins (GRMs) weigh on the firms’ margins.
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After a meeting between Prime Minister Narendra Modi and US President Donald Trump on February 13, both nations committed to increasing energy trade and establishing the US as a leading supplier of crude oil and petroleum products and liquefied natural gas to India.
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Energy experts told Moneycontrol that the companies are unlikely to cut fuel prices as OMC profitability has dipped in the current fiscal so far compared to last year.
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The growth in the current fiscal is supported by rising consumer, industrial and infrastructure demand, the rating agency said in the report, projecting India’s GDP growth at 6.4 percent in FY25.
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Petrol and diesel prices will, in fact, fall in states such as Odisha, Chhattisgarh, and Himachal Pradesh due to a rationalisation of intra-state freight.
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A turbulent geopolitical environment has led to a dramatic fall in profits for state-run oil marketing companies battling low refining margins amid weak cracks and low global demand
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With the upcoming elections in key states of Maharashtra and Haryana, and crude at a record-low levels, OMCs could be prodded into a price cut.
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Potential government intervention to lower fuel prices ahead of the Maharashtra state election could potentially hinder these profits
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The benchmark Brent has been trading below $75 per barrel in September and closed at $71.45 a barrel on September 9 amid weakening global demand and signs of oversupply in the market.
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India is considering cutting the prices of petrol and diesel, broadcaster India Today TV said citing sources. Following the report, shares of IOCL, HPCL, and BPCL fell on September 6 after having risen for the past two sessions.
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These investments come amid weak global demand for traditional fuels. While the petrochemical sector offers growth potential, state-run companies have underperformed in this area, adding a layer of risk.
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Indian Oil reported 49 percent drop in profit in the March quarter from a year earlier. Rivals BPCL and HPCL posted 30 percent and 25 percent declines in profits, respectively.
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After the price cut, Hindustan Petroleum Corporation Limited may face a negative near-term impact on its integrated margin, while IOC could experience a similar effect due to its lower self-sufficiency ratio of 60 percent
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Petrol prices in Delhi would now be Rs 94.72 per litre compared to Rs 96.72 per litre earlier.
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However, given the ongoing crisis in the Red Sea and geopolitical tensions, a reduction in fuel prices seems unlikely for the OMCs, said Puri.
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Companies in sectors like IT, pharma, chemicals, oil marketing and textiles generally gain when the rupee falls. This time, the story is different. Analysts explain why.
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In addition to the decline in crude oil prices, the healthy performance of OMCs in the September quarter has also worked in favour of the companies. The Indian refiners swung back to profit in the second quarter posting a consolidated net profit of Rs 27,295 crore in the second quarter of FY24.
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Demand from China, the largest energy importer in the world, has remained weak due to economic distress in the country. Meanwhile, crude stocks in the US rose by 3.6 million barrels recently.
