The government on Friday raised fuel prices in the country, in an effort to soften the blow on oil marketing companies, as global crude soared beyond $100 while retail prices remained unaltered. Now, as petrol and diesel are Rs 3 costlier, the key question is: to what extent will the price hike help?While the outlook may have appeared slightly optimistic at first glance, the issue is no longer limited to crude oil prices, as a falling rupee has also entered the field. The main concern is what happens when a weakening currency and rising fuel costs come together, where even a small change can erase the gains from recent policy measures.According to SBI Research’s Ecowrap, rupee is now at a level where further depreciation could neutralise the benefit of the recent Rs 3 per litre hike in petrol and diesel prices. The report highlighted, “even an additional depreciation of Rs 2 in the Rupee raises the effective crude oil price, pushing the landed import cost, which fully offsets the gains from the current fuel price hike.”It added that the recent hike in fuel prices was introduced primarily to ease the financial strain on Oil Marketing Companies (OMCs), which continue to suffer from high crude oil costs while retail fuel prices have remained unchanged.According to the report, “OMCs’ under recoveries on sales of petrol and diesel are soaring because of unchanged retail prices,” adding that these companies are “incurring losses to the tune of Rs 1000 crore per day, which amounts to around Rs 3.6 lakh crore a year.”According to the bank, Rs 3 per litre revision in fuel prices would provide relief worth about Rs 52,700 crore to OMCs, but this would cover only around 15% of their projected FY27 losses.The report also highlighted the sensitivity of this relief to currency movements, noting that “Rupee has already approached a critical depreciation threshold, beyond which further currency weakness could substantially erode the intended benefits of domestic fuel price revisions.”Consider the math: assuming an FY27 exchange rate of Rs 94 per US dollar and crude oil at $106 per barrel, SBI Research has estimated the landed crude cost at nearly Rs 9,964 per barrel. It said the Rs 3 per litre hike gives OMCs a benefit of about Rs 477 per barrel, but even a Rs 2 fall in the rupee would push up import costs and wipe out much of this gain.
SBI called for broader macroeconomic preparedness, stating, “There is a need for a comprehensive policy on balance of payments.”On global oil markets, SBI Research pointed to continued volatility, citing disruptions in the Strait of Hormuz linked to the ongoing Middle East crisis. It said, “As per the latest IEA report, crude will continue to remain under pressure owing to the depleting inventories.”It further noted that shipments through the Strait of Hormuz have declined sharply in recent months, affecting both crude oil and LNG flows.On inflation, the report estimated that the fuel price revision may push Consumer Price Index (CPI) inflation higher by around 15–20 basis points during May–June 2026, while also revising its FY27 inflation projection to 4.7%.
