Crude Oil Price Surge: There has been a continuous and sharp increase in the price of crude oil in the international market for the last few days. Since August 28, Brent crude oil prices from the Gulf countries have recorded a huge jump of about 10%, which has brought Brent crude prices close to $97 per barrel on September 2. Despite rising prices in the global market, Indian oil distribution companies (OMCs) is currently suffering this loss. However, there are fears that crude oil prices will once again cross $100. If this happens, a situation has arisen in which the price of petrol and diesel will have to increase in the country in the coming days.
10% surge in crude prices in few days
Brent crude was trading around $97 per barrel in the afternoon on September 2. The price has increased by more than $5 in just the last two days. Since August 28, the price of Brent crude has increased by $8 per barrel, i.e. more than 10%. The main reason behind this sudden price increase is the escalating military tension between the US and Iran and the war-like situation in the Middle East. Earlier in May, when oil marketing companies increased the price of petrol and diesel by Rs. 7.5, while the average price of the Indian crude basket rose to $106.23 per barrel due to the Iran war.
How long can companies bear the burden?
According to media reports and statistics, the state-owned oil marketing companies (Indian Oil, Bharat Petroleum, Hindustan Petroleum) can operate at ‘break-even’ levels, incurring losses as long as crude oil prices are in the range of $85-90 per barrel. Up to this level companies refrain from raising retail prices. But if crude prices continue to stay above $95-100, a rethink on fuel prices will be inevitable. Currently, petroleum companies are operating on negative margins on petrol and diesel, yet there is little chance of an immediate price hike in the near future, but if prices remain above $100 for weeks, there is every possibility of a price hike.
Per liter on sale of diesel at Rs. A loss of 15
According to calculations by rating agency ICRA, oil companies currently sell petrol at Rs. 5 is getting a marketing margin, but on sale of diesel they get Rs. A negative marketing margin of 15 means a direct loss. According to ICRA, companies can break-even on diesel produced at their own refineries up to the level of $85-90, but they are incurring huge losses on diesel bought from standalone refineries. Indian crude basket price was $90.19 in August.
When will petrol and diesel prices increase?
According to experts, oil companies are currently bearing the brunt of $85-90 crude prices as they are earning good margins in the refining sector. At one point the daily loss of oil companies was Rs. 1,000 crores, which has now come down to Rs. 500 crore has happened. But if crude oil stays above $95-100 for too long, companies will inevitably pass the price increase on to consumers. Currently, companies are adopting a policy of “wait and watch”.
A blow to the gas cylinder too
Apart from petrol-diesel, the situation is worrying on the cooking gas (LPG) front as well. OMCs are currently incurring a huge loss (under-recovery) of ₹200 per cylinder on domestic LPG cylinder sales. On August 10, Petroleum Minister Suresh Gopi informed the Rajya Sabha that the total loss of oil companies on domestic LPG sales has crossed ₹59,000 crore till July 31. The government has provided compensation of ₹52,000 crore till fiscal 2027, but the war in West Asia and the threat of closure of the Strait of Hormuz have deepened the economic crisis for companies, raising international prices.
