Can a ₹2 Rupee depreciation wipe out fuel hike benefits? SBI flags fresh oil risks

The recent ₹3 per litre increase in petrol and diesel prices may provide temporary relief to state-run oil marketing companies (OMCs), but a further depreciation in the rupee could quickly offset the benefits, according to SBI Research’s latest Ecowrap report. The report highlights that while the fuel price revision is expected to reduce losses for OMCs, the larger concern remains India’s vulnerability to global crude oil prices and currency fluctuations amid continued geopolitical tensions in West Asia.

Fuel price hike

The recent fuel price increase was introduced after OMCs faced rising under-recoveries due to unchanged retail prices despite a sharp increase in global crude prices.

According to SBI Research, OMCs have been incurring losses of nearly ₹1,000 crore per day, translating into approximately ₹3.6 lakh crore annually. The latest increase in petrol and diesel prices is expected to provide around ₹52,700 crore in relief, covering only 15% of the projected FY27 losses for oil retailers.

While the relief amount appears significant, it addresses only a small portion of the overall financial stress faced by oil companies.

The report noted that under-recoveries have risen sharply as retail prices remained unchanged even as Brent crude prices climbed.

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Rupee depreciation

SBI Research warned that the larger challenge may not be domestic fuel pricing, but the weakening rupee.

The report estimates that even an additional ₹2 depreciation in the Indian currency could effectively erase the gains from the recent fuel hike.

Under SBI’s assumptions, an average FY27 exchange rate of ₹94 per US dollar and an Indian crude basket price of $106 per barrel would place the current landed crude cost at around ₹9,964 per barrel. The ₹3 fuel hike provides an estimated benefit of approximately ₹477 per barrel for OMCs.

However, if the rupee weakens by another ₹2, the effective cost of imported crude rises substantially, neutralising much of the gains generated through higher domestic fuel prices.

Rupee’s role as shock absorber

SBI said the rupee has reached a “critical depreciation threshold,” suggesting that further weakness may substantially reduce the effectiveness of domestic fuel price revisions.

The report also observed increasing convergence between crude oil volatility and exchange-rate movements. SBI found a correlation of 0.53 between crude price fluctuations and rupee volatility, indicating that global oil shocks are increasingly transmitting into India’s domestic currency environment.

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Global oil concerns remain elevated

The uncertainty comes at a time when global crude markets remain under pressure due to disruptions linked to the West Asia conflict.

According to SBI, inventory pressures and supply disruptions continue to pose risks. Any further escalation in geopolitical tensions or additional weakness in the rupee could create fresh stress for fuel retailers and policymakers.

For now, the ₹3 fuel hike may offer some breathing room for OMCs. But SBI’s analysis suggests that unless currency stability and crude prices improve, the relief could prove temporary rather than transformational.

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