Crude Oil Up 6% Today- Will Petrol, Diesel Prices Increase In India?

Crude Oil Price Today: Brent crude oil prices rose more than 6 per cent on March 19 after fresh attacks on energy infrastructure in West Asia raised concerns over global supply.

Brent crude oil futures for May delivery were trading at $114.35 per barrel, up about 6.50 per cent from the previous close. The contract rose as much as 11 per cent to an intraday high of around $119 per barrel in today’s session.

Over the past three sessions, Brent has gained more than 18 per cent, while since the start of the US-Israel-Iran conflict on February 28, prices have surged over 60 per cent.

India’s crude oil basket rose to $146.39 per barrel on March 18, up 112 per cent from February’s average of $69.01, according to the Petroleum Planning and Analysis Cell (PPAC).

The Indian basket shows the actual price India pays for importing crude oil. It is made up of two types of oil, sour crude, which is based on the Oman and Dubai average, and sweet crude, which is based on Brent dated. Sour crude forms the larger share, and together they are mixed in a ratio of 78.71 to 21.29.

Will Petrol, Diesel Prices Increase In India

In India, petrol and diesel prices are linked to the market and are supposed to be revised by oil marketing companies (OMCs) based on global fuel prices, crude oil costs and the rupee-dollar rate.

However, in reality, these changes do not always happen immediately. When crude prices become volatile, especially during sharp spikes, companies often keep prices unchanged for some time instead of passing on the increase right away to end users like us.

If crude prices stay high for a long period, it becomes difficult for OMCs to absorb the higher costs. In such a situation, petrol and diesel prices may have to be increased, although any hike is usually gradual rather than sudden.

According to analysts at Kotak Institutional Equities, near-term petrol and diesel price hikes are unlikely, although rising crude prices are expected to weigh on OMC margins and erode the buffer built in recent years.

"OMCs have benefited from elevated marketing margins in the past few years. However, weak earnings are now set to erode the buffer created," the brokerage firm said in a report dated March 17.

The brokerage said the risk of a rise in retail fuel prices remains limited. It added that India can increase imports of discounted Russian crude, and that surplus refining capacity in the country can provide an added cushion.

Pressure on OMC's Margins

The sudden rise in crude oil prices is expected to put pressure on the margins of OMCs such as Indian Oil Corporation, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited.

These companies have largely kept petrol and diesel prices unchanged in recent months, even as global oil markets remained volatile. When crude prices rise but retail prices stay the same, their costs go up while revenues do not increase in the same way.

If crude prices remain high for a longer period, this gap widens, which means OMCs may have to absorb losses on fuel sales, leading to pressure on their overall margins.