Oil companies’ losses on LPG will reduce to Rs 160/cyl with Rs 50 hike in prices from this month: Report
Oil marketing companies (OMCs) are likely to reduce losses on selling domestic LPG cylinders over the next few months due to the recent LPG price hike and falling international fuel prices, according to a report by Antique Stock Broking. The government has increased the prices of LPG cylinders by Rs 50 from April. It has also raised excise duty on petrol and diesel by Rs 2 per litre. According to the report, the LPG price hike is clearly aimed at covering the under-recoveries, or losses which OMCs are facing while selling LPG cylinders below the cost. These under-recoveries were becoming a financial burden. It said, “With the latest hike, LPG losses will fall to INR 160/cyl in May-25, which we estimate will decline to INR 60/cyl by 2QFY26”. The report estimated that losses on LPG will fall to Rs 160 per cylinder in May 2025, and further reduce to just Rs 60 per cylinder by the second quarter of the financial year 2025-26 (July to September 2025). These lower losses are expected because of a fall in crude oil prices and a seasonal drop in international propane prices, especially from Saudi Arabia. Propane prices are likely to fall by USD 85 per tonne, reaching around USD 525 per tonne by August. By August, LPG under-recoveries could fall further to Rs 60 per cylinder and may even come down to zero if these trends continue. The report also mentioned that even if retail fuel prices are cut in the coming months, as long as crude oil remains around USD 65 per barrel, OMCs will still earn enough from their marketing margins to cover any losses in refining. The report said OMCs are currently in a good position. They are enjoying strong profits from auto fuel sales, and Singapore refining margins (also known as GRMs) are also expected to improve. This is because of ongoing refinery shutdowns, better pricing between light and heavy crude oils, and the rollback of supply cuts by oil-producing countries. Additionally, the report added that Saudi Arabia is expected to lower its official selling price (OSP), which will also help improve refining margins.
Standard Chartered: Time To Dial Down the Oil Panic?
Oil prices earned an unexpected reprieve on Wednesday afternoon, regaining over 3% immediately following U.S. President Donald Trump’s surprise decision to pause reciprocal tariffs for 90 days for all except China. After flirting with prices below $60, Brent crude was trading up 3.41% at 2:56 p.m. ET, while WTI was trading up 3.74%, breaching the $61/barrel mark. This week, Brent crude at one point dipped below $60 per barrel after OPEC+ revealed plans to accelerate its phase-out of production cuts. Brent crude for May delivery sank 6.3% to $58.68 per barrel at 8.00 am ET, a level they last touched more than four years ago, while WTI fell by 6.2% to $55.20 per barrel. Last week, eight OPEC+ countries unveiled plans to advance their planned phase-out of voluntary oil output cuts by ramping up output by 411,000 barrels per day in May–equivalent to three monthly increments. The announcement of the accelerated pace of unwinding of production cuts comes at a time when U.S. President Donald Trump announced tariffs on trading partners, deepening the shock to oil markets. And now commodity analysts at Standard Chartered have weighed in, saying the latest twist in the OPEC saga was to be expected as the likes of Saudi Arabia looked to make a strong statement against freeloaders like Kazakhstan and Iraq that consistently failed to compensate for past overproduced volumes, “In our view, the major underlying story is that Saudi Arabia will want to accelerate the phasing out of voluntary cuts unless all partners involved fulfill their promises, adding to the raft of warnings given recently to any country seeking to free-ride on the compliance of others,” StanChart recently predicted. Last month, we reported that Kazakhstan has ramped up oil production, with the country’s crude oil and gas condensate–a type of light oil- output hitting a record high of 2.12 million barrels per day in February, good for a 13% increase from January. Excluding gas condensate, crude oil production increased 15.5% m-o-m to 1.83 million bpd. The OPEC+ member has been able to increase oil output despite damage to the Caspian Pipeline Consortium (CPC), its main export route via Russia. Kazakhstan has repeatedly exceeded its OPEC+ output quota of 1.468 million bpd. Last year, Kazakhstan, Russia and Iraq submitted their compensation plans to the OPEC Secretariat for overproduced crude volumes for the first six months of 2024. According to OPEC, the entire over-produced volumes were to be fully compensated over the next 15 months through September 2025, with Kazakhstan ‘paying back’ a cumulative 620 kb/d, Russia 480 kb/d and Iraq 1,184 kb/d. Unfortunately, these countries have only been paying lip-service with their promises to cut back production, with Saudi Arabia and its OPEC+ allies finally deciding to do something about the long build-up and the catalogue of missed promises. The bad news: StanChart has predicted that OPEC+ is unlikely to change its stance in relation to the overproducers, unless, in the unlikely event, that Iraq and Kazakhstan are able to reach their targets, and submit revised plans for significantly more front-loaded cuts in order to compensate for past overproduction. In other words, there’s a significant risk that the markets could soon be flooded with oil, which comes at a bad time when Wall Street is sounding the alarm on the growing risk of a recession. JPMorgan has raised the odds of a U.S. and global recession this year to 60% from 40% previously, thanks in large part to Trump’s tariffs. JPM CEO Jamie Dimon has also revealed that IPOs were already being canceled amid market volatility. On a brighter note, StanChart remains bullish about oil market fundamentals, saying the scale of the acceleration is not large enough to lead a Q2 supply surplus given the tightness of the immediate market. Further, the commodity experts say the latest OPEC+ move is likely to enhance future production discipline and compliance with set targets and quotas. StanChart says non-OPEC+ producers, U.S. shale in particular, are not the focus of the accelerated phase out. If anything, the move is a big gift to Trump who has been urging the cartel to increase production in a bid to lower oil and fuel prices. Last year witnessed a sharp slowdown in non-OPEC+ supply growth from 2.46 mb/d in 2023 to 0.79 mb/d in 2024, primarily caused by a reduction in U.S. total liquids growth from 1.605 mb/d in 2023 to 734 kb/d in 2024. StanChart expects this trend to continue, with U.S. liquids growth expected to clock in at just 367 kb/d in 2025 before slowing down further to 151 kb/d in 2026. Stanchart says the U.S. slowdown and a long tail of declines will keep non-OPEC supply growth well below 1 mb/d over the next couple of years despite some areas of solid growth in Brazil, Canada and Guyana.
Is Oil Demand About to Surge?
Benchmark oil prices hit the lowest level since the pandemic panic on Wednesday. Once again, the slump is caused by panic—this time, market panic as U.S. President Donald Trump keeps turning up the tariff heat. For now, everyone seems to be in the grip of fear about what tariffs would do to oil demand. But there is one thing that low prices will definitely do: stoke up demand. The latest oil price crash came Tuesday after Trump said he would impose an additional 50% tariff on Chinese imports following China’s retaliation against the last round of tariffs, which saw it add 34% to U.S. imports, matching the U.S. tariff rate. Trump called on China to remove the retaliatory tariff. China refused. Trump slapped it with that 50%, bringing the total to 104%. Brent crude has breached the $60 threshold, and West Texas Intermediate traded at just above $56 per barrel before soaring again after Trump announced a 90-day pause on tariffs for a large number of nations, but lifted those for China. In the meantime, Asian oil imports are on the rise. Reuters’ energy columnist Clyde Russell reported the latest changes in imports for the first quarter, noting that while January and February saw weaker imports of crude than last year, March marked a turnaround. Russell attributed the turnaround to refinery restocking and prices. Brent crude has dropped by more than $20 per barrel since January, and, per LSEG data cited by Russell, Chinese refiners had been drawing on their stocks in the first two months of the year, so some replenishment was in order. Now, the important question is whether the increase in imports will continue. With prices where they are, there is a pretty good chance they will. China has built a reputation for being quick to recognize a good bargain, and it will continue to take advantage of such bargains amid the price rout. It won’t be just China, either. Cheap oil is good news for every consumer country, so chances are demand will strengthen in the coming weeks and months—unless the disastrous economic growth projections that analysts have been in a rush to produce since the beginning of the tariff war materialize. The chief argument in those projections is that tariffs add to the cost of a product, which results in higher end-prices, in turn prompting lower demand for that product. Yet, currently, tariffs are causing a price crash in energy commodities, and when energy commodities are cheap, end products are cheap, too. In other words, the effect of the tariffs on energy commodities might, somewhat ironically, offset some of the effect that tariffs are having on end-prices of tariffed commodities and products. “China’s 50,000 bpd to 100,000 bpd of oil demand growth is at risk if the trade war continues for longer, however, a stronger stimulus to boost domestic consumption could mitigate the losses,” Rystad Energy’s vice president for oil commodity markets, Ye Lin, told Reuters this week. True as that might be from a certain perspective that focuses on the primary effect of tariffs on goods, another perspective that takes into account the effect of prices on energy commodity prices suggests that the effect might be less dramatic than that. Put simply, when gas is cheap, people travel more—and refineries stock up, even if there is no immediate demand for more of their products. Also, the prices of things made using oil decline, too. It is still early days, however. The full effect of Trump’s tariffs has yet to be known, although the U.S. president has already demanded that the European Union buy more U.S. oil and gas to eliminate its trade surplus with Washington. Speaking in numbers, Trump has demanded that the EU buy $350 billion worth of U.S. energy commodities – with the current price rout, that would mean more oil and LNG than just a month ago. Also, China has already started reselling its U.S. LNG cargoes to the EU, so that’s even more supply that would eventually push down prices as long as tariffs remain in place. This is, in fact, the biggest question of all: how long will the tariff war last. The longer it does, the more pronounced the effects on actual physical markets will become. If the war ends in a couple of weeks, oil prices will rebound immediately, even with OPEC’s surprising decision to add 411,000 bpd to its daily supply. In the meantime, the slump in oil prices is a good, if not painful, way to gauge the health of the physical demand for oil. Futures markets are all everyone looks at—along with Chinese economic figures—but physical demand is the real thing. If cheap oil pushes demand higher, as it has always done before, except in force majeure circumstances such as pandemic lockdowns, then prices will eventually start climbing. If physical demand is organically weak, low prices will only sink lower.