Indian Oil Firms Face Unsustainable Losses as Crude Averages $105 Amid Weak Rupee

Indian oil companies are facing unsustainable financial losses as the cost of crude oil averages $105.4 per barrel in May, with the Indian oil basket priced at $99.69 and the rupee weakening against the dollar, according to government officials. State refiners are buying expensive crude globally but selling fuel domestically at regulated prices, leading to sharp under-recoveries.

The government has cut excise duties on petrol by Rs 13 per litre and diesel by Rs 10 per litre to ease the burden, amounting to a monthly revenue loss of Rs 14,000 crore. Officials said the fiscal space for such measures is limited, and the government will also need to subsidize domestic cooking gas cylinders as global prices remain elevated.

Former BPCL chief G Krishanakumar said oil companies need stronger balance sheets to invest in the energy transition, warning that price adjustments are necessary as most countries have already raised fuel costs. Former HPCL chief SK Surana added that while under-recoveries must be addressed promptly, the government must weigh the impact on inflation and consumers.

Retail inflation stands at 3.4%, and a sharp fuel price hike could push it higher. The government and oil companies are expected to review pricing mechanisms soon, with officials indicating that some form of price adjustment may be unavoidable in the coming weeks.

The government will convene energy ministry officials and public sector oil companies next week to assess options, including phased price increases or alternative compensation mechanisms.