Brent fell more than 2% on Monday after Washington waived new Russia sanctions, but it is still up about 75% from a year ago.
On Friday, Brent crude, the global benchmark, briefly touched $110 a barrel, its highest since 19 May. It settled at $109.86, up 3.7% in a single day, as attacks on ships near the Strait of Hormuz and threats to Saudi energy facilities revived fears of a long supply shock.
Then in the weekend President Donald Trump waived tariffs and sanctions under a new US law targeting buyers of Russian energy, raising expectations that more Russian fuel would reach world markets. Washington also cleared a deal to import Russian diesel.
By Monday afternoon, Brent had fallen to about $107, down roughly 2.5% on the day. US crude was just under $100.
That is a relief. It is also a sense of perspective worth keeping: Brent is still about 7% higher than a month ago and roughly 75% higher than a year ago.
The losses nobody sees
When oil rises and pump prices don’t, the gap has to be absorbed somewhere. Right now, it lands mostly on Indian Oil, Bharat Petroleum and Hindustan Petroleum, the state-run fuel retailers.
In a note dated 15 October, brokerage Jefferies estimated they were losing about ₹26 on every litre of petrol and ₹30 on every litre of diesel, based on 15-day average prices. Their crude procurement cost, including freight and insurance in a dangerous shipping environment, had climbed to around $125 a barrel.
Averaged over the whole July-to-September quarter, the picture was less severe, because oil was cheaper for part of that period. Emkay Research estimates the companies roughly broke even on petrol, earning about ₹2.9 a litre, but lost about ₹16.7 a litre on diesel. Nuvama’s estimate is gloomier: a loss of about ₹3 on petrol and ₹24.5 on diesel. Either way, diesel, the fuel that moves India’s trucks, farms and freight, has been sold well below cost.
Cooking gas adds to the strain. Rating agency ICRA estimated last month that the companies were losing around ₹300 on every domestic LPG cylinder.
Impact of oil
The reason is inflation. Retail inflation reached a 23-month high of 5.54% in September, and wholesale inflation hit 11.39%, driven by fuel. Raising diesel prices would push up the cost of moving almost everything, from vegetables to cement. With the festive season under way and the RBI already raising interest rates, the government has strong reasons to keep pump prices steady.
It has already taken one step to ease the pain. In April, it cut excise duty on petrol and diesel by ₹10 a litre, which reduced, but did not eliminate, the gap.
The rupee helps
The currency is offering some support. The rupee rose to about 94.80 against the dollar on Monday, extending what traders call its sharpest rally in seven months, after falling close to 97 earlier this month. Because oil is priced in dollars, a stronger rupee lowers the cost of every barrel.
The RBI has been supplying dollars directly to oil companies and selling dollars in the market. Reserves of about $726 billion give it room to keep doing so. But traders warn that if Brent climbs back above $110, dollar demand rises and the rally could stall.
What happens now
The losses can’t run forever. They will be absorbed by the companies, compensated by the government, or eventually passed on to consumers through higher pump prices. Usually it is some mix of all three, with timing set by politics.
Investors will get a clearer view soon. IOC, BPCL and HPCL report their September-quarter results in the coming weeks, and inventory gains and losses will differ between them. Those numbers will show how much of the oil shock India’s fuel retailers have quietly carried on behalf of every driver in the country.
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