Indian crude basket near $123 as weak rupee squeezes oil refiners
India's crude oil basket climbed to $123.29 a barrel last week, up 86% on the price paid by Indian oil marketing companies, while a weaker rupee added to import costs and pushed state fuel marketers' margins negative.
The price approaches levels last seen in March 2012. Because Indian refiners settle oil purchases in U.S. dollars, a softer rupee inflates the bill on top of the war premium already built into global crude prices.
Investment bank Elara Capital was cited by local media as saying that diesel and gasoline margins at Indian state refiners have both turned negative, even though retail fuel prices have risen.
Separately, India’s crude oil import bill reached $90.6 billion in the third quarter of the year, nearly $29 billion higher than a year earlier, while import volumes rose less than 1% to 122.7 million tons.
Supply patterns are shifting. Imports from the Middle East jumped 32% in September from August to 2.8 million barrels per day, the highest since February, as more volumes left the Persian Gulf. Russian oil remained India’s largest single source, though demand softened as a tanker squeeze linked to ship-to-ship transfers amid an Iranian blockade of Gulf shipping lanes raised freight costs, forcing Russian producers to offer bigger discounts.
In currency markets, the rupee has also come under pressure from strong dollar demand tied to elevated oil prices, with USD/INR trading near 95.20-95.30, a level traders expect the Reserve Bank of India to defend through intervention.
Higher oil import costs widen India’s trade deficit and add to inflation pressure, which can weigh on the rupee and Indian assets. For global markets, sustained Middle East-linked supply risk and freight disruptions affecting Russian crude flows remain a factor for Brent crude and WTI crude pricing.
Sources: OilPrice.com; FXStreet