Crude Import Price Falls Below $70, But Retail Fuel Price Cut Unlikely

Imported crude has turned cheaper. Friday's average for the Indian oil basket hit $68.86 a barrel, sliding under the $70 mark for the first time since hostilities erupted in West Asia. This price represents a plunge of over 56% from the $157.04 peak recorded on March 23, weeks after the conflict began on February 28.

State-run oil marketing companies are now earning marketing margins of Rs 5-6 a litre on petrol but continue to lose Rs 8-10 a litre on diesel, people familiar with the matter said. Consumers are unlikely to see an immediate cut in petrol and diesel prices as refiners seek to recover previous losses and the government may recoup part of the fiscal cost of shielding consumers, the people said.

Indian Oil Corporation, Bharat Petroleum Corporation Ltd, Hindustan Petroleum Corporation Ltd and the petroleum ministry did not respond to emailed queries.

Chronology of Price Shocks

India imports more than 88% of the crude oil it processes. The Indian basket stood at $71.17 on February 27 before crossing $100 in early March and remaining above that level until May. It fell below $80 by mid-June and hit $68.86 on June 26.

The Strait of Hormuz, which serves as a transit route for a fifth of global oil, closed during the conflict, driving up international prices significantly.

Prices eased after prospects of a US-Iran peace agreement emerged. A mid-June memorandum of understanding aimed at ending the conflict allowed energy shipments to resume.

The Massive Fiscal Toll

The government cut the excise duty on petrol and diesel by Rs 10 a litre on March 27. This intervention occurred when oil marketing company losses hit Rs 26 a litre on petrol and Rs 81.90 a litre on diesel.

These companies raised petrol and diesel prices by a cumulative Rs 7.35 and Rs 7.53 a litre respectively between May 15 and May 25 as losses widened again despite the excise duty reduction, people familiar with the matter said.

The Centre has borne a fiscal cost of about Rs 1.23 lakh crore to shield consumers. The excise duty cut costs nearly Rs 14,000 crore a month in forgone revenue, people familiar with the matter said.

Infrastructure Shields Indian Consumers

Petroleum Minister Hardeep Singh Puri said on X that the government had protected Indian consumers from the global energy shock "despite severe supply disruptions".

Puri credited diversified crude sourcing, expanded import infrastructure and strategic investments in pipelines and storage for preventing fuel shortages.

India maintained uninterrupted supplies despite the closure of the Strait of Hormuz. The country avoided the fuel rationing seen in several other countries.