Further Rupee Depreciation to Offset Oil Companies' Gains from Fuel Price Hike: SBI Report

Rupee Depreciation Threatens to Offset Oil Marketing Companies' Gains

The recent hike in vehicle fuel prices by Rs 3 per litre, implemented by state-run fuel retailers, is expected to provide relief of Rs 52,700 crore in oil marketing companies (OMCs) under recoveries. This represents 15 per cent of the expected total loss of the OMCs in FY27, according to a report from the State Bank of India's Economic Research Department, known as SBI Ecowrap.

The petrol and diesel price hike, which marked the first increase in over four years, was triggered by surging global crude prices caused by the Iran war. However, the report warns that further depreciation of the rupee against the US dollar could exhaust all the gains from the current fuel price hike. According to the report, an additional depreciation of Rs 2 in the rupee raises the effective crude oil price, pushing the landed import cost and fully offsetting the gains from the current fuel price hike.

The rupee has already approached a critical depreciation threshold, beyond which further currency weakness could substantially erode the intended benefits of domestic fuel price revisions. On Friday, the rupee crashed below the 96/USD mark before closing at an all-time low of 95.81 against the US dollar.

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The SBI report highlights that oil marketing companies are incurring significant losses, citing figures mentioned by oil minister Hardeep Singh Puri. According to the report, OMCs are incurring losses to the tune of Rs 1,000 crore per day, which amounts to around Rs 3.6 lakh crore a year.

Comparison of OMC Losses

Source: SBI Ecowrap

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