On Friday, the government raised fuel prices in the country, in an attempt to soften the blow on oil marketing companies, as the global price of crude oil rose to more than $100 while retail prices remained unchanged.
Now, as petrol and diesel have become Rs 3 more expensive, the key question is: how much will the price hike help?While the outlook may seem a bit optimistic at first glance, the issue is no longer limited to crude oil prices, as a falling rupee has also entered the space. The main concern is what happens when a weak currency and high fuel costs combine, where even a small change could erase the gains from recent policy measures.According to SBI Research’s Ecowrap, the rupee has now reached a level where further decline could neutralize the benefit of the recent Rs 3 per liter rise in petrol and diesel prices. “Even an additional decline of Rs 2 in the rupee raises the effective price of crude oil, increasing the cost of import, fully offsetting the gains from the current rise in fuel prices,” the report stressed.He added that the recent hike in fuel prices was introduced primarily to ease financial pressure on oil marketing companies, which continue to suffer from high crude oil costs while retail fuel prices remained unchanged.
“Recoveries from OMCs from petrol and diesel sales are rising due to unchanged retail prices,” according to the report, adding that these companies are “incurring losses to the tune of Rs 1,000 crore per day, which comes out to about Rs 3.6 lakh crore annually”.According to the bank, a revision in fuel prices by Rs 3 per liter will provide relief worth about Rs 52,700 crore to OMCs, but this will cover only about 15% of their expected losses in FY27.The report also highlighted the sensitivity of this easing to currency movements, noting that “the rupee has already approached a critical depreciation threshold, beyond which further currency weakness could significantly erode the intended benefits of domestic fuel price reviews.”Consider the math: Assuming the FY27 exchange rate at Rs 94 per US dollar and crude oil at $106 per barrel, SBI Research estimated the cost of crude oil at around Rs 9,964 per barrel.
A rise of Rs 3 per liter gives OMCs a benefit of about Rs 477 per barrel, but even a fall of Rs 2 in the rupee would lead to higher import costs and erase much of these gains, it said.
The SBI called for broader macroeconomic preparedness, saying: “A comprehensive balance of payments policy is needed.”In global oil markets, SBI Research noted continued volatility, citing unrest in the Strait of Hormuz linked to the ongoing Middle East crisis.
“According to the latest IEA report, crude oil will remain under pressure due to depleted inventories,” she said.It also noted that shipments through the Strait of Hormuz have declined sharply in recent months, affecting flows of crude oil and liquefied natural gas.Regarding inflation, the report estimated that the fuel price adjustment could push CPI inflation higher by about 15-20 basis points over the period from May to June 2026, with inflation expectations for fiscal year 2027 revised to 4.7%.