Rating agency ICRA believes even though increasing oil prices add to the fiscal burden for the country, it is a positive for the upstream oil companies such as ONGC and Oil India.
The ongoing war between Russia and Ukraine has led to a reduction in the offtake of Russian crude and a consequent increase in crude oil and gas prices.
According to Prashant Vasisht, Vice President & Co-Group Head at ICRA: "While a possible Iranian nuclear deal could increase oil supply, it cannot entirely replace the loss of Russian oil as Iran is a much smaller oil producer than Russia. Prices of natural gas have also soared to all-time highs as Russia is a large producer of gas and supplies about one-third of the gas requirement of Europe.”
The demand for petroleum products in the current fiscal has witnessed some recovery compared to the preceding fiscal but remains lower than the pre-Covid levels.
"Elevated crude prices may adversely impact the demand recovery witnessed in the recent months. The benchmark Singapore gross refining margin (GRM) has witnessed improvement in the recent months, however, high crude prices and subdued global demand may adversely impact the GRM. However, in the near term, there could be some inventory gains, which might aid the refinery GRMs. The retail prices of auto fuels are being increased in a small amount. Graded price increases would prolong losses for the oil marketing companies," ICRA said.
Domestic gas prices notified at $2.9/mmBtu (GCV basis) for the second half of the financial year 2021-2022 (H2 FY22) remain low and accordingly gas production remains a loss-making proposition for most of the Indian upstream producers. While domestic gas prices are expected to increase substantially in the next revision, the gas business of PSU upstream companies would turn profitable, ICRA said.
The rating agency pointed out that India’s commodity imports from Russia and Ukraine are less than 2 percent. "With many countries imposing sanctions on Russia, prices of the said commodities are surging. Consequently, concerns over India’s growth and inflation projections are increasing. If this commodity price surge sustains for long, it might impact the Indian economy," ICRA said.