A weak rupee will send India’s net oil and net gas imports bill soaring further from $114.7 billion last fiscal since the country meets 86% of its crude and 50% of natural gas requirement through imports.
The elevated crude prices, which after softening by over 15-20% in last three weeks on recessionary fears, to below the $100-mark, was trading again at $105.5 a barrel at 16.15 IST on Tuesday.
During the April-May period of the current fiscal, India’s oil and gas (net) import bill has gone up to $ 27.4 billion, up from $15.8 billion during the same period a year earlier.
The week rupee, analysts said, will further worsen under recoveries of the oil marketing companies’ such as Indian Oil Corporation (IOC) and Bharat Petroleum (BPCL) who kept the retail fuel prices unchanged since May 22 despite elevated crude prices. These companies are incurring under-recoveries of Rs 19.9 a litre for petrol and Rs 36.5 per litre for diesel at the end of June, according to industry estimates.
Sourav Mitra, Director-Energy, CRISIL, said, “India is a significant importer of oil and gas. The falling rupee value makes these imports costlier, increasing the costs and reducing the margins for downstream companies. Rupee depreciation will result in higher crude oil prices, thereby exerting stress on both wholesale and retail inflation in the near term.”
Similarly, rupee depreciation will have higher natural gas prices with the extent of these increased costs are expected to be passed on to the final customers of CNG and PNG. Similar pattern can be expected for other import-dependent fuels too, Mitra said.
Prashant Vasisht, VP & Co-Group Head, ICRA, said, “For the downstream companies the working capital requirements would increase. Also, cash accruals would also increase for a given gross refining margin (GRM) level for the downstream companies.”
Emkay’s Sabri Hazarika said, “For marketing companies, losses on controlled items will increase. There will be forex loss also in the near term on crude payables and foreign debt.”
Upstream companies like ONGC and Oil India will benefit from the weak rupee. Reliance Industries is unlikely to be impacted much since both its raw materials as well as final products are priced in dollar, analysts said.
Mitra said, “Upstream companies might benefit because crude oil is priced in dollars and depreciation of rupee with respect to dollar improves their revenues. The government had recently imposed a tax on crude oil produced in India – Rs 23,250 per tonne of crude oil produced by upstream players. Rupee depreciation might offset the impact of this tax on upstream companies.”
The rupee realisations and cash accruals for upstream companies would increase, said Vasisht. Hazarika said weak rupee will raise upstream earnings as oil and gas prices are dollar denominated.