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Oil Firms May Absorb High Crude Costs Amid LPG Shortage Backlash

A Kotak Institutional Equities report states that oil marketing companies (OMCs) may have to absorb higher crude import costs, as raising retail fuel prices is politically difficult amid public discontent over LPG shortages. The situation is compounded by increased risks from the West Asia conflict and disruptions in the Strait of Hormuz, which have led the firm to revise its oil price assumptions upward. Attacks on Qatari LNG facilities, partly operated by ExxonMobil, have damaged a significant portion of export capacity, raising concerns for import-dependent India. The report notes that OMCs' past elevated marketing margins are now expected to weaken, eroding their financial buffer.

Key Points: Oil Firms to Absorb High Crude Costs, Price Hikes Difficult

  • OMCs may absorb higher crude costs
  • Price hikes difficult amid LPG shortage sentiment
  • West Asia crisis raises oil price risks
  • Weakening earnings to erode past margin buffers
  • Capex needed for LPG storage post-crisis
3 min read

Oil companies may have to absorb higher crude costs as negative sentiment amid LPG shortages makes price hikes difficult: Report

Report says oil marketing companies may absorb higher crude costs as LPG shortages make petrol, diesel price hikes difficult. Risks rise from West Asia crisis.

"The negative public sentiment amid LPG shortages makes large petrol/diesel price hikes very difficult. - Kotak Institutional Equities Report"

New Delhi, March 20

Oil marketing companies 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.

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.

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.

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

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Reader Comments

P
Priya S
The LPG shortage is the real issue here. My cook hasn't come for 3 days because she can't get a cylinder. How are households supposed to function? Before worrying about OMC margins, the focus should be on securing supply. Qatar situation is very worrying for us.
R
Rohit P
Honestly, the report's price assumptions seem optimistic given the West Asia crisis. $85/barrel for FY27? With attacks on LNG facilities, it could go much higher. India's energy security is too dependent on volatile regions. Time to fast-track domestic exploration and renewables. 🇮🇳
S
Sarah B
While I understand the geopolitical pressures, the report mentions OMCs benefited from "elevated marketing margins." They had a buffer. A measured, small price hike might be acceptable if it prevents a severe shortage later. Transparency about where the money goes is key.
V
Vikram M
The root cause is external, but our infrastructure is weak. The report says they may need fresh capex for LPG storage. Shouldn't that have been planned proactively? We keep reacting to crises. Strategic reserves need to be a top priority, not an afterthought.
M
Michael C
It's a complex global supply chain issue. The disruption in the Strait of Hormuz affects everyone. Hoping for diplomatic solutions to de-escalate the region's tensions, as that's the only long-term fix for energy price stability.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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