Rupee depreciation could offset OMC gains from Rs 3 per litre fuel price rise, says SBI Ecowrap

A fresh fall in the rupee against the US dollar could wipe out the benefit to oil marketing companies from the recent Rs 3 per litre rise in fuel prices, according to SBI Ecowrap. The note warned that weaker currency makes crude imports costlier in rupee terms. That higher landed cost could cancel the gains from the price revision.

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SBI Ecowrap estimated the Rs 3 increase in petrol and diesel would cut under-recoveries by about Rs 52,700 crore. The report said this equals nearly 15 per cent of the total loss expected for oil marketing companies in FY27. The assessment came from the State Bank of India’s Economic Research Department.

Rupee depreciation and oil marketing companies gains

The report added that a small currency slide could be enough to erase the relief. It stated: "Our calculations show that even an additional depreciation of Rs 2 in the rupee from FY27 current average at Rs 94 stays put raises the effective crude oil price, pushing the landed import cost, which fully offsets the gains from the current fuel price hike,\" the report said.

SBI Ecowrap also said the rupee is near a level where extra weakness may sharply reduce the benefit of domestic fuel changes. It said this point is a \"critical depreciation threshold\" for the currency. Beyond that, the intended relief from higher pump prices may not hold.

Rupee depreciation and oil marketing companies losses

The rupee moved sharply on Friday, sliding past 96 per US dollar during the session. It later ended at 95.81, which was a record low close. The report linked currency risks to crude purchase costs, since oil imports are paid in dollars.

Fuel retailers raised petrol and diesel prices by Rs 3 per litre each on Friday. This was the first increase in more than four years. State-run companies passed on part of the impact from higher global crude prices. The report tied the global rise to the Iran war.

Citing figures attributed to oil minister Hardeep Singh Puri, SBI Ecowrap said OMCs are losing about Rs 1,000 crore daily. It said this equals around Rs 3.6 lakh crore over a year. The note linked these losses to a gap between costs and pump prices.

With inputs from PTI