Brent crude oil prices traded near $108 a barrel on Monday, October 19. Brent settled at $109.86 on Friday, its highest close since May 19. India imports most of its crude oil. Higher prices can increase its import bill, pressure the rupee and add to inflation risks.
Why Brent crude oil prices are rising
Friday’s rally followed renewed concerns about oil supplies. These included tensions involving Iran and the Houthis, risks to shipping through the Strait of Hormuz, and Ukrainian strikes on Russian refineries.
Prices eased on Monday after Washington relaxed some restrictions affecting Russian energy trade. The move raised hopes of additional supplies reaching the market. However, the waiver was limited. It did not remove all restrictions on Russian energy.
The Strait of Hormuz remains a critical energy chokepoint. Before the conflict escalated in February, more than 130 ships crossed it daily. Nearly one-fifth of global oil and liquefied natural gas shipments passed through the waterway. Disruptions can raise shipping costs and push crude prices higher.
Related reading: Our report on Ukraine’s drone attack on Russian oil sites.
How Brent crude oil prices affect India’s oil bill
India spent $15.4 billion on crude imports in September, up from $10.5 billion a year earlier. The figures come from provisional data compiled by the Petroleum Planning and Analysis Cell (PPAC).
The Indian crude basket averaged $116.09 a barrel in September. From April to September, India’s crude import bill reached $90.6 billion. It stood at $61.9 billion during the same period last year.
Import volumes rose only slightly, from 121.8 million tonnes to 122.7 million tonnes. This suggests higher prices drove most of the increase in the import bill.
A larger bill can widen India’s trade deficit and increase demand for US dollars. The final impact also depends on exchange rates, export earnings and other financial flows.
Why petrol and diesel prices have not moved
State-run fuel retailers have kept pump prices steady despite higher crude costs. PPAC listed petrol at ₹102.12 a litre and diesel at ₹95.20 in Delhi as of October 15.
When crude prices rise but retail prices remain unchanged, oil marketing companies can face pressure on their margins. The extent depends on crude costs, refining margins and product prices.
Private retailers have already raised prices. Jio-bp reportedly increased petrol by ₹5 a litre and diesel by ₹3 from October 11. Nayara Energy had also raised prices earlier in the month.
Whether state-run retailers follow suit will depend on how long crude prices remain elevated. Their commercial decisions and government policy will also matter.
How Brent crude oil prices affect the rupee
The rupee closed at ₹94.9250 per US dollar on Monday, October 19. It finished close to Friday’s level after trading in a narrow range.
Early gains faded as weaker equities and dollar demand from importers offset support from lower oil prices. Sustained increases in Brent crude oil prices can put pressure on the rupee. Oil importers need dollars to pay overseas suppliers. Capital flows and central bank action also influence the exchange rate.
Inflation and your EMI
Higher oil prices can raise transport, logistics and production costs. These increases can feed into inflation across the economy.
The September retail inflation figure of 5.54% and wholesale inflation figure of 11.39% cited in the earlier draft should be verified against official releases before publication. Any forecast that retail inflation will exceed the Reserve Bank of India’s 6% upper tolerance level in October also needs a current source.
The RBI raised the repo rate by 25 basis points to 5.50% on October 7, according to the policy decision cited in the draft. Borrowers with repo-linked floating-rate loans may see their interest rates or EMIs change when their lenders reset the loans.
The timing and impact depend on each loan agreement and reset schedule. Fixed-rate loans do not automatically change when the repo rate changes.
What to watch next
- The RBI’s October policy meeting minutes, scheduled for October 21, and its next policy meeting in December.
- Any petrol and diesel price changes by state-run retailers.
- Shipping activity through the Strait of Hormuz and the impact of the US waiver on Russian energy supplies.
- The next official inflation reading and signs of broader price pressures.
- China’s economic performance, including its reported 4.5% GDP growth in the third quarter.
Higher oil prices do not automatically mean an immediate increase in fuel prices or loan EMIs. However, if Brent crude oil prices remain elevated, pressure on India’s import costs, currency and inflation outlook could persist.
