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Global crude oil prices rose after US President Donald Trump recently rejected an Iranian peace proposal, keeping uncertainty alive around the West Asia war and the Strait of Hormuz. Brent crude increased by 1.27% to $105.64 a barrel on September 28, while West Texas Intermediate was at $93.11. For India, which imports nearly 85% of its crude requirement, the development has consequences for inflation, fuel prices and the import bill.
Why did oil prices rise owing to the West Asia War?
Iran had proposed a peace plan at the United Nations General Assembly, with the proposal communicated to the US through Qatar. Trump rejected the plan, although he indicated that American negotiators could conduct further talks.
The uncertainty has worsened concerns over oil supplies and shipping routes. Reuters reported that risks around the Red Sea and Bab el-Mandeb are also causing supply routes to be vulnerable.
How can this affect edible oil prices in India?
Crude oil and edible oil are varied commodities, so an increase in petroleum prices does not automatically mean cooking oil prices will increase by the same amount.
India imports a major share of its edible oil requirement, making domestic prices sensitive to international commodity prices, freight costs and the rupee-dollar exchange rate. Higher crude can also influence demand for vegetable oils used in biodiesel, particularly palm and soybean oil, potentially tightening supplies available for food use.
Why are Indian OMCs losing Rs 500 crore daily?
The impact is more direct for state-run oil marketing companies Indian Oil, Bharat Petroleum and Hindustan Petroleum. According to ICRA numbers quoted by The Indian Express, the three companies are losing around Rs 530 crore every day on fuel marketing.
Their estimated marketing loss is about Rs 8 per litre on petrol, Rs 9 on diesel and around Rs 300 per domestic LPG cylinder. Retail fuel prices have remained same for more than three months, despite higher international crude and petroleum-product prices.
Why can't OMCs offset losses?
India's public-sector OMCs control around 90% of the petrol and diesel retail network and are the only household LPG retailers. Although refining margins have improved, those gains do not fully compensate for marketing losses because the companies sell more fuel than they produce and purchase additional products from other refiners.
ICRA estimates that combined refining and marketing operations break even when crude is around $85-$90 a barrel.
What does it mean for India?
A continued $10 rise in crude prices can add roughly $12-$15 billion to India's annual import bill. Higher energy costs can add inflationary pressure.