Benchmark Brent crude, which has a bearing on India’s crude purchase cost, hit USD 73.6 on Wednesday, remaining near the record low level this year seen after Tuesday’s 5% drop on heightened worries over tepid demand growth, especially in China.
Analysts said prospects of oversupply caused by Libyan supplies returning to the market, the Opec+ grouping unwinding the voluntary production cut from Oct and rising output from sources outside the grouping have been adding to the downward pressure on oil prices.
The decline in oil prices since Jan led to positive marketing margins for the fuel retailers, especially the state-run entities who cater to 90% of the market. Govt took advantage by leaning on them to cut petrol and diesel prices by INR 2 per litre on March 14, just ahead of the general election.
Even after first reduction in pump prices since May 2022, a Motilal Oswal Financial Services report in April had projected a gross marketing margin of more than INR 2 per litre in April when the Indian Basket, or the mix of crude processed by Indian refiners, averaged USD 89.4 per barrel. This would have swollen further by now as the basket, which trails Brent by USD 2-4 per barrel, averaged USD 76 in Sept.
But the jury is out on whether the govt would capitalise on the situation by seeking another cut in pump prices again in view of analysts predicting oil price volatility. Projecting prices to remain volatile in the near-term, financial services company UBS bet on the oil market remaining under-supplied. Goldman Sachs too has forecast USD 70-85/barrel price range.
Govt will be comfortably placed even if the current low prices do not last long but level out at USD 85, which will give it the leeway to ask the state-run retailers to keep pump prices frozen ‘voluntarily’ as, what oil minister Hardeep Singh Puri describes as ‘good corporate citizens’ — as has been seen in the last three years.
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