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Crude Prices Surge, Squeezing Indian Oil Companies
11 Mar
Summary
- Rising crude prices threaten Indian oil company profit margins.
- India faces potential retail fuel price hikes to curb inflation.
- Middle East conflict impacts global oil supply and prices.
Middle East tensions are driving up crude oil prices, posing a significant risk to the profit margins of India's major oil marketing companies (OMCs) – IOC, BPCL, and HPCL. S&P Global Ratings indicates these companies may need to maintain current retail prices for petrol and diesel to manage inflation. This decision could adversely affect their earnings.
The ongoing conflict impacts global oil supply, particularly through the Strait of Hormuz, a crucial chokepoint for oil and LNG. S&P has revised its 2026 average Brent crude assumption upwards to $65 per barrel due to these escalating geopolitical events.
While upstream companies like ONGC are relatively insulated by higher sale prices, downstream OMCs face market and regulatory pressures. The Indian government might intervene through budgetary allocations or excise duty cuts, similar to actions during the Russia-Ukraine conflict, though the likelihood of such support is uncertain.
India, heavily reliant on maritime routes for crude, imports a substantial portion of its LPG and LNG via the Strait of Hormuz. Efforts to diversify supply include increased purchases from Russia and Venezuela. Recent waivers have allowed Indian refiners to secure Russian crude amid supply disruptions.
India's strategic reserves are limited, supporting approximately 10 days of consumption, with commercial stocks providing about 65 days. LPG and LNG stockpiles are even lower, ranging from 10 to 30 days, highlighting potential vulnerabilities in securing energy supplies.
