As rupee hits new lows and FIIs resume selling, oil may offer comfort

As the rupee hits new lows daily amid sustained foreign investor selling of Indian equities, expectations by some analysts of a steady crude oil prices over the short-term come as a breather.

The Indian rupee hit a record low of 87.5525 against the US dollar on Thursday, a day that foreign institutional investors (FIIs), who net bought Indian equities on Tuesday after selling for 23 straight sessions, resumed offloading stocks again.

Crude oil prices will remain range bound at an average of $75-80/bbl in the short-term on the back of higher overall global crude oil production, ratings firm Care Edge Ratings said in a report.

The higher output is aided by an increase in crude oil production in the US, countries in the Opec oil cartel continuing to largely maintain their production levels; and no major disruption in the supply of Russian crude oil, Hardik Shah, director at CareEdge Ratings, said in the report.

Improved retail margins for oil marketing companies (OMCs) are expected to offset weaker gross refining margins (GRMs), positioning integrated oil refining and retail firms to fare better than standalone refiners, Shah said.

“Good retail margins in the domestic market have resulted in Indian players focusing more on expanding their retail network rather than focusing on exports, which was more lucrative, especially in FY23,” he added.

Global crude oil prices have been declining sequentially on a quarterly average basis since the April-June quarter of this fiscal, despite jumping sharply in January, CareEdge said, adding that demand growth is expected to be relatively subdued against the backdrop of a slowdown in major global economies.

Indian public sector oil marketers saw their average GRMs drop to $4.80 per barrel in the first nine months of FY25, down from $11.75 in FY24 and $17 in FY23.

This decrease was mainly due to fewer discounts on Russian crude oil and lower profit margins on products such as diesel, which had previously spiked after the Russia-Ukraine war.

Looking ahead, CareEdge Ratings estimated that these refining margins would stay between $4 and $6 per barrel over the next six months.

Meanwhile, retail margins on petrol and diesel for these companies increased significantly in the third quarter of FY25 to about Rs9 per liter, helped by falling crude oil prices and the decrease in refining margins, the report said.

With crude oil prices expected to remain stable and refining margins not likely to increase, retail margins are projected to stay healthy at Rs 7 to Rs 9 per liter, leading to possible adjustments in the retail prices of petrol and diesel, which have been unchanged for a long time, the report added.