Indian oil firms may absorb higher crude costs as LPG shortages and public sentiment prevent petrol/diesel price hikes, a report notes. The West Asia crisis and attacks on Qatar's LNG facilities are escalating risks to India's energy supply.
OMCs Face Margin Pressure
Oil marketing companies (OMCs) in India may have to absorb higher crude oil import costs as raising petrol and diesel prices remains difficult amid negative public sentiment due to LPG shortages, according to a report by Kotak Institutional Equities.
The report noted that the ongoing West Asia crisis and disruption in the Strait of Hormuz have increased risks to crude oil prices in FY2027.
According to the report, with no retail pricing freedom, OMCs will be required to absorb higher crude oil costs along with increased freight and insurance expenses. It stated, "The negative public sentiment amid LPG shortages makes large petrol/diesel price hikes very difficult. OMCs have benefited from elevated marketing margins in the past few years".
The report highlighted that the current situation is further complicated by the negative public sentiment due to LPG shortages, making it difficult for companies to implement large hikes in petrol and diesel prices. It noted that OMCs had benefited from elevated marketing margins in recent years, but weakening earnings are now expected to erode the buffer created earlier. The report indicated that post-crisis, companies may need to undertake fresh capital expenditure for LPG storage infrastructure.
Revised Oil Price Forecasts
The report also revised its oil price assumptions to USD 85 per barrel for FY2027, USD 75 per barrel for FY2028 and long-term estimates to USD 65 per barrel, compared with earlier assumptions of USD 65 per barrel for FY2027/28 and USD 70 per barrel in the long term.
West Asia Crisis Escalates
The third week of the West Asia conflict has seen a significant escalation in attacks by both US-Israel and Iran. On Wednesday night (local time), Iran retaliated after an Israeli strike targeted the South Pars gas field, further intensifying the situation.
The situation has been aggravated by attacks on energy infrastructure in Qatar. Iranian strikes have damaged key facilities, affecting 17 per cent of the Qatar's liquefied natural gas (LNG) export capacity.
Impact on Qatar's LNG Exports
According to official statements, the attacks damaged LNG producing Trains 4 and 6, with a combined production capacity of 12.8 million tonnes per annum (MTPA), representing approximately 17 per cent of Qatar's exports. Train 4 is a joint venture between QatarEnergy (66 per cent) and ExxonMobil (34 per cent), while Train 6 is a joint venture between QatarEnergy (70 per cent) and ExxonMobil (30 per cent).
The disruption has raised concerns for India, which relies heavily on Qatar for its energy requirements. Reduced supply from one of its largest suppliers could impact both availability and pricing in the domestic market. (ANI)
(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)