Fuel prices may rise again, relief depends on Strait of Hormuz: Anuj Gupta

Petrol and diesel prices in India may continue to rise further in the short term despite recent corrections in global crude oil markets, feels commodity market expert Anuj Gupta. He also warned that inflationary pressure on daily essentials could intensify if fuel prices remain elevated.

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India, which imports nearly 80-90 per cent of its crude oil requirement, has seen petrol and diesel prices going up several times in 10 days or so, thanks to the conflict in West Asia between Iran and the US and Israel and a blockade of the strategic Strait of Hormuz, a crucial global oil-shipping route.

Gupta spoke with The Federal about the reasons behind the fuel price hike, the impact of global tensions, inflation concerns, and whether any relief is likely soon.

Here are some excerpts from the interview:

Petrol and diesel prices have risen by nearly Rs 8 per litre in less than two weeks. What is driving this sudden hike?

In the last 10 days, we have seen the government increase fuel prices four times. Petrol in Delhi is now around Rs 102.12 per litre. In other cities too, prices have increased by almost Rs 8 to Rs 9 in recent days.

The main reason behind this is the rise in crude oil prices in the international market. Due to geopolitical tensions between the US and Iran, shipments are not reaching India smoothly through the Strait of Hormuz. Because of this supply disruption over the last several days, crude oil prices have increased sharply.

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In the last four months, crude oil prices have risen by almost 80 per cent. That is why petrol and diesel prices have increased in India as well.

Are crude oil prices rising only because of short-term tensions, or could high energy prices continue for longer?

The biggest concern for crude oil prices right now is the Strait of Hormuz. If the Strait opens fully and the situation normalises, crude oil prices are likely to correct further.

In fact, over the last two days, crude oil prices have already corrected by nearly 10 per cent. WTI Crude is trading around $90 per barrel, while Brent Crude is around $95 per barrel.

But the disruption has not completely ended yet. Official confirmation regarding the end of tensions and the reopening of the Strait is still pending.

Once both sides officially announce that the war is over and shipping routes reopen, we could see a sharper correction in crude oil prices.

Also read: Crude oil futures hit record Rs 10,571/barrel as Brent breaches USD 126

India consumes around five to six million barrels of crude oil per day and imports nearly 80-90 per cent of it. If the supply chain normalises, India can import crude at lower prices again.

Are oil marketing companies simply recovering losses, or are they also making profits during this period?

The three oil marketing companies — Indian Oil Corporation, Bharat Petroleum Corporation Limited, and Hindustan Petroleum Corporation Limited — are together bearing losses of around Rs 1,000 crore every day.

To reduce this burden, the government increased petrol and diesel prices.

The losses are huge, and this is not a short-term issue. Even if the Strait of Hormuz opens today, it could take three to four months for these companies to recover fully from the losses.

Once imports happen at lower prices again, the pressure on these companies may reduce gradually.

How much is the weakening rupee contributing to higher fuel prices?

The weakening rupee and higher crude oil prices are directly linked.

Whenever crude oil prices increase, India needs more dollars to pay for imports. That raises dollar demand and weakens the rupee.

Over the last four months, crude oil prices have increased sharply, and the rupee has depreciated by around eight to nine per cent in the last two months.

Also read: Petrol, diesel prices raised by over Rs 2.5 each; fourth hike in less than two weeks

If crude prices continue to rise, the rupee may weaken further. But if crude oil prices correct and the Strait of Hormuz situation improves, the rupee could strengthen again.

In the last two days, as crude prices corrected by around 10 per cent, the rupee also strengthened slightly.

Could rising diesel prices push up inflation and the cost of essential goods?

Yes, definitely.

Inflation is currently the biggest concern for major economies, including India, the US, Europe, and Japan. Many central banks, including the RBI, the Federal Reserve, the Bank of England, and the Bank of Japan, are closely watching inflation.

There is a strong possibility of further monetary tightening or interest rate hikes if inflation continues rising.

In India, higher diesel prices will increase transportation costs. Goods such as milk, bread, butter, vegetables, and other essentials are transported using vehicles that run on diesel and petrol.

If fuel prices rise further, retailers and shopkeepers are likely to pass those costs on to consumers.

Could the government reduce taxes or excise duty to provide relief?

I am not expecting major tax cuts right now because oil marketing companies are already facing heavy losses.

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At the moment, the government’s priority appears to be reducing the burden on these companies rather than cutting taxes.

What is your outlook for petrol and diesel prices by the end of June?

Globally, we are not expecting another major rise in crude oil prices because the war situation appears to be easing gradually. The US and Iran are giving indications that the Strait of Hormuz could reopen.

That could increase crude oil supply and help prices cool further.

However, in the domestic market, we may still see small increases in petrol and diesel prices because oil marketing companies are still dealing with large losses.

The government is also trying to conserve foreign exchange reserves. Prime Minister Narendra Modi has appealed to people to avoid unnecessary fuel consumption and reduce excessive spending on imports like gold and silver.

So, fuel prices could increase another two or three times, but only gradually.

Any final thoughts on what people should watch out for?

Everything now depends on the Strait of Hormuz.

Also read: Indian Oil assures no nationwide fuel shortage, cites local supply imbalances

If it reopens fully and supplies normalise, crude oil prices could fall further towards $75-$80 per barrel.

If that happens, the government may eventually begin reducing petrol and diesel prices too. That would be positive for the Indian economy.

But until supply disruptions ease completely, fuel prices are likely to remain under pressure.