Crude Above $100, But Petrol and Diesel Need Not Become Costlier

CNN Central News & Network-ITDC India Epress/ITDC News Bhopal: Crude Above $100, But Petrol and Diesel Need Not Become Costlier Immediately

For an economy as dependent on imported crude oil as India, every sustained rise in international oil prices carries the potential to create pressure on inflation, transportation costs, industrial margins and household budgets. Therefore, when crude oil crosses the psychologically important $100-per-barrel mark, the immediate question is whether petrol and diesel prices in India will also rise. The latest assessment by Kotak Institutional Equities, however, suggests that an immediate increase in retail fuel prices may not be necessary, because changes in excise duty and domestic fuel prices have provided oil marketing companies with some cushion. Kotak estimates that the break-even crude price for Indian oil marketing companies has risen to around $102–105 per barrel.

This is important news for consumers, but it should not be interpreted as evidence that high crude prices no longer matter to India. They matter greatly. The difference is that the impact does not necessarily have to be passed on to consumers immediately or in full.

The current situation reflects a delicate balance between consumer relief and the financial health of oil marketing companies. Petrol and diesel prices have remained relatively insulated from the latest international volatility, while crude and refined-product costs have risen sharply. Earlier reports had estimated that public-sector OMCs were already facing negative marketing margins as international crude moved above $100 a barrel.

Kotak's latest assessment therefore provides a useful perspective. According to the brokerage, a ₹10-per-litre reduction in excise duty and approximately ₹7.5-per-litre increase in retail petrol and diesel prices have raised the break-even crude threshold to roughly $102–105 per barrel. This means that crude prices around the $100 level do not automatically require another immediate increase in pump prices.

But the word “immediate” is crucial.

Oil prices are not determined only by a single day's international benchmark. What matters to India's economy is the duration and intensity of the price shock. If crude remains above $100 for a prolonged period, the pressure on oil companies, the import bill and the wider economy can increase considerably. India's actual cost of imported crude can also differ from headline futures prices because freight, insurance, crude quality, supply disruptions and geopolitical risks affect the delivered cost. Recent reporting has highlighted how India's crude basket can trade significantly above global futures because of these additional costs.

This makes the present situation particularly sensitive. The continuing disruption in West Asian oil supplies has increased uncertainty in global energy markets. Kotak has consequently raised its FY2027 crude price assumption to $90 per barrel from $85, while retaining a longer-term assumption of $75. The brokerage also expects elevated crude prices to keep pressure on OMC earnings in the near term.

Therefore, keeping petrol and diesel prices stable for some time can provide consumers with valuable relief, especially when inflationary pressures are already being transmitted through transportation and other energy-intensive sectors. Fuel prices affect logistics, agriculture, manufacturing, aviation and everyday consumption. A sudden increase can travel through the economy much faster than the price of crude itself.

At the same time, there is a limit to how much of the international shock oil companies can absorb. If retail prices remain unchanged while procurement costs continue to rise, marketing margins deteriorate. Recent estimates have put the combined daily losses of public-sector OMCs from petrol, diesel and domestic LPG at hundreds of crores under certain market conditions.

This is why fuel-price policy requires a careful distinction between temporary shock absorption and permanent price suppression. Absorbing a short-term rise can protect consumers from unnecessary volatility. But if high crude prices persist for months, continuously transferring the entire burden to OMCs could weaken their financial position and eventually create a larger adjustment problem.

The situation is also not uniform across the entire fuel market. While state-owned OMCs have continued to maintain retail prices, private fuel retailers have faced a different set of pressures. The government has recently warned private retailers against restricting petrol and diesel sales at their outlets, underlining the importance of maintaining adequate fuel availability.

This highlights another important aspect of the debate: fuel security is as important as fuel prices. Consumers should not receive stable prices at the cost of shortages or artificial restrictions. Availability, affordability and financial sustainability have to move together.

There is also a larger lesson for India's energy policy. Every episode of high crude prices reminds the country of the vulnerability created by dependence on imported energy. Strategic petroleum reserves, diversification of crude suppliers, stronger domestic production, efficient refining capacity and accelerated development of alternative energy sources can reduce the impact of future international oil shocks.

India also needs greater transparency in the relationship between global crude prices and domestic retail fuel prices. Consumers deserve to understand why prices rise, why they remain unchanged during certain periods and how much of an international price movement is actually reflected at the pump. A predictable and transparent framework can reduce uncertainty for both consumers and businesses.

The present $100-plus crude environment should therefore not be viewed merely through the narrow question of whether petrol and diesel prices will increase tomorrow. The more important question is how long the current international shock will last and how effectively India can distribute its economic burden.

For the moment, the Kotak assessment provides some room for stability. Crude above $100 does not automatically mean that petrol and diesel prices must immediately rise, particularly when the estimated OMC break-even level has moved towards $102–105 per barrel. But this cushion should be treated as breathing space, not as a permanent solution.

India needs to use such periods of relative stability to strengthen its energy resilience, improve supply diversification and prepare consumers and businesses for a world in which oil prices can change rapidly because of geopolitical developments.

The immediate priority should be to avoid unnecessary price shocks while maintaining adequate fuel supplies and protecting the financial sustainability of oil companies. The longer-term priority must be to reduce the economy's vulnerability to international crude volatility.

Crude crossing $100 is a warning, not necessarily an immediate reason for higher pump prices. The real test is whether India can protect consumers today while building an energy system that is less vulnerable to the oil shocks of tomorrow.

Hashtags: #Editorial #Bhopal #Desksource #Crude #Above #100 #DeskSource #But #Petrol #Diesel