State-run oil marketing companies (OMCs) are facing renewed pressure on fuel sales, with petrol marketing margin deteriorating to minus ₹4.2 a litre from minus ₹2 a week earlier and diesel remaining deeply negative at ₹24.9 a litre, as the Indian crude basket crossed the $100-a-barrel mark amid fresh tensions in West Asia.
The Indian crude basket stood at $101.07 a barrel on September 4, while the September average has climbed to $99.38 a barrel. Crude prices strengthened further on Monday, with Brent futures rising $1.19, or 1.2%, to $97.47 a barrel by 1214 GMT, after touching $97.93, the highest level since July 24.
According to Equirus Securities’ weekly oil and gas tracker, petrol marketing margin worsened to minus ₹4.2 a litre from minus ₹2 a week earlier, while diesel was almost unchanged at minus ₹24.9 a litre compared with minus ₹24.8. Month-to-date margins stood at minus ₹3.2 a litre for petrol and minus ₹26.5 for diesel.
The latest squeeze comes even though petrol and diesel pump prices have remained unchanged since the last round of retail price increases on May 25. State-run retailers had raised prices four times between May 15 and May 25, cumulatively by around ₹7.5 a litre, taking petrol in Delhi to ₹102.12 a litre and diesel to ₹95.20 a litre.
The last retail price revisions came during a period of substantially higher crude costs, with the Indian crude basket averaging $106.23 a barrel in May. The basket’s September average of $99.38 remains below that level. Marketing margins, however, are also influenced by international petrol and diesel prices, freight and insurance costs and the rupee.
Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA, said the renewed Iran-US hostilities pose a challenge to crude supplies moving through the Strait of Hormuz, while Iran’s threat to establish a restricted maritime zone beyond Hormuz could put additional energy flows at risk. He said the rise in crude prices could further pressure auto-fuel marketing margins and increase domestic LPG under-recoveries.
The upward pressure on crude has been visible over the past week. Brent averaged $96.3 a barrel in the week ended September 4, up 2.8% week-on-week, while the Indian crude basket rose faster by 3.8% to $99.4. Oman crude increased 4.7% to $102.7 a barrel, while Dubai rose 1.2% to $86.6.
Strong refining margins, however, continue to offset part of the retail loss. Gasoline crack rose 2.2% week-on-week to $27.2 a barrel, around 45% above its one-year average. Gasoil crack eased 1.4% to $72.6 a barrel, but remained around 82% above the one-year average. Jet kerosene crack rose 0.5% to $71.9 a barrel.
As a result, integrated refining-and-marketing margins remained positive despite losses on retail fuel sales. Assuming a 1:1 refining-to-marketing ratio, petrol integrated margin fell 13.6% week-on-week to ₹12 a litre, while diesel declined 5% to ₹18.2 a litre. Against three-month levels, petrol and diesel integrated margins were lower by 41.3% and 19.1%, respectively.
The renewed pressure follows a difficult June quarter for the three state-run retailers after the Iran-war supply shock disrupted crude flows and sharply increased logistics costs. IndianOil, Bharat Petroleum and Hindustan Petroleum reported combined net losses of ₹18,149 crore during the quarter.
The disruption also pushed up landed crude costs. BPCL’s crude landed differentials, including freight, insurance and supplier premia, rose to $13-15 a barrel from $4-5 before the war, according to the Equirus tracker. BPCL responded by increasing spot crude sourcing to 69% from 44% and raising Russian crude to 38% of procurement. The report said refining remained the “key earnings cushion”, while elevated product prices weighed on marketing.
HPCL was hit particularly hard by under-recoveries and inventory losses. Its marketing under-recovery was around ₹26,000 crore in the June quarter, including roughly ₹20,000 crore on petrol and diesel and ₹6,000 crore on LPG. Higher crude stocks built to secure supplies during the war were followed by an approximately $25-a-barrel fall in crude prices, forcing inventory write-downs.
Meanwhile, some relief on crude sourcing could come from softer Saudi pricing. Saudi Aramco has priced September-loading Arab Light for Asian buyers at a $2-a-barrel discount to the Oman/Dubai benchmark, deeper than the $1.50 discount in August. This marks a sharp reversal from premiums of $19.50 a barrel in May, $15.50 in June and $9.50 in July. Freight and insurance costs, however, remain elevated, having increased by $9-10 a barrel after the conflict, according to Equirus Securities.