Pressure mounts on Govt for petrol, diesel price cut with Brent in free-fall

Hitting an over three-year low of $62 a barrel last week, global crude oil prices are in a free fall which, coupled with an escalating trade war, is fuelling bearish sentiments on global demand.

As oil prices slipped below $65 a barrel (bbl), pressure has started to build on the government for a cut in retail prices of diesel and petrol.

Global crude oil prices continued their downward descent on Monday with Brent prices ruling at $63.23 per barrel (bbl) in early afternoon (India time), a decline of over 3 per cent.

Bearish sentiment

In its weekly commodity derivatives snapshot, Axis securities said on Monday that Nymex Crude Oil futures tumbled 10 per cent last week to $62 per barrel, the lowest level since August 2021, as mounting concerns over a global economic slowdown and weakening oil demand pressured prices.

To add to this, Saudi Arabia has also slashed its official selling price of the flagship grade, Arab Light, for Asia for May 2025—the second month in a row—amidst OPEC+ rewinding the production cuts beginning this month.

On prices, JM Financial in a note on Monday said “But we believe Brent crude price is unlikely to sustain significantly below around $70 a barrel (bbl) as it could hurt US shale oil capex (with break-even crude price requirement for US shale companies unlikely to be lower than $60-65/bbl); the US President is also likely to prefer around $70 oil price, which takes care of US consumer interest but also protects US oil companies’ interest.”

Further, any sustained fall in oil price below $70 per bbl may lead to reversal in OPEC+ output hike decision as it will otherwise deepen Saudi Arabia’s fiscal deficit, given its fiscal break-even crude price is around $85, it added.

OMCs & price cut

Meanwhile, the politics is hotting up as crude oil prices weaken.

Congress leader Manish Tiwari in a post on X on Monday said: “Crude oil prices are in a free fall . Today Crude Oil is at $64 Dollars to a barrel. Why @HardeepSPuri is the benefit not being passed onto the consumers. What happened to dynamic pricing? Is it a one way street that only goes up and does not go down?”

A decline in crude oil prices is bearish for upstream companies, like ONGC and Oil India, as their margins get hit. “Sustained decline in crude price below $70/bbl is a significant negative for ONGC/Oil India as every $1/bbl lower crude price results in 1.5-2 per cent decline in ONGC/Oil India EPS,” JM Financial said.

Softening crude oil prices favour oil marketing companies (OMCs) such as Indian Oil Corporation (IoCL), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL). However, weakening prices can also lead to inventory losses for refiners who are holding cargoes at higher prices.

Sustained lower crude price could boost OMCs’ auto-fuel marketing margin; at spot crude price of around $65 per bbl. OMCs’ auto-fuel marketing margin has jumped to around ₹13 per litre (vs. historical ₹3.5 or ₹6.2 adjusting for LPG losses), JM Financial said.

“However, this is unlikely to sustain at these high levels in the medium to long term as historical precedent suggests the government is likely to mostly hike the excise duty on petrol/ diesel and/or cut petrol/ diesel price if crude price sustains at low levels (also indicated recently by the Union Oil Minister),” the brokerage added.

Further, OMCs’ high marketing margin is likely to be partly offset by potential downside risk to GRMs if the tariff war is likely to result in downside risk to global oil demand, it said.

Published on April 7, 2025