Crude Prices Drop Below $70, But Why Petrol And Diesel Prices May Stay Unchanged

India’s crude oil import cost has slipped below $70 a barrel for the first time since the West Asia conflict began, easing pressure on fuel retailers and the wider economy. But motorists should not expect an immediate reduction in petrol and diesel prices, as oil companies are still recovering earlier losses and the Centre may look to regain part of the revenue it gave up to cushion consumers.

The average price of the Indian basket of crude fell to $68.86 a barrel on June 26, according to the latest available data. That is a sharp fall from the conflict-period peak of $157.04 a barrel on March 23. The decline has improved the finances of state-run oil marketing companies, but not enough to reset retail fuel prices quickly.

Why petrol and diesel prices may not fall immediately

People familiar with the matter said state-owned fuel retailers are now making marketing margins of about ₹5-6 a litre on petrol. Diesel, however, remains under-recovered, with losses estimated at around ₹8-10 a litre. This uneven recovery is one reason why a pump price cut is unlikely in the near term.

Indian Oil Corporation, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd dominate the domestic retail fuel market. Their pricing decisions are closely watched because petrol and diesel affect household budgets, transport costs, inflation expectations and state tax collections. The petroleum ministry and the companies did not respond to queries on the matter.

India imports more than 88% of the crude oil it processes, making domestic fuel prices highly sensitive to global supply disruptions. When crude prices surged after the conflict began, retail petrol and diesel prices were not raised in line with import costs. That helped shield consumers, but it pushed oil marketing companies into heavy losses.

The government cut excise duty on petrol and diesel by ₹10 a litre each on March 27. The move was aimed at limiting the burden on consumers and partly offsetting losses at fuel retailers. At one point, losses had climbed to ₹26 a litre on petrol and ₹81.90 a litre on diesel, according to people aware of the estimates.

How the crude oil price fall changes the fuel equation

The fall in the Indian crude basket has changed the immediate pricing environment. Lower import costs reduce the daily pressure on refiners and fuel retailers. They also improve the government’s room to manage inflation and fiscal pressures. However, retail fuel prices do not move mechanically with crude prices, especially after a period of large under-recoveries.

Between May 15 and May 25, state-run oil companies raised petrol and diesel prices by a cumulative ₹7.35 and ₹7.53 a litre, respectively. Those increases came after losses widened again despite the excise duty reduction. The closure of the Strait of Hormuz had deepened supply concerns, as the route handles about a fifth of globally traded oil.

Oil prices began to soften after signs emerged of a possible US-Iran peace agreement and a memorandum of understanding was signed in mid-June to outline a pathway towards ending the conflict. As energy shipments through the Strait of Hormuz gradually resumed, global crude prices eased and India’s supply situation improved.

The Indian basket stood at $71.17 a barrel on February 27. It crossed $100 in early March and remained above that level until May. By mid-June, it had fallen below $80 a barrel before dropping to $68.86 on June 26. The speed of the decline has been significant, but its impact at fuel pumps will depend on policy and company-level decisions.

Government may weigh revenue recovery before any price cut

The Centre has already absorbed a large fiscal burden during the crisis. People familiar with the assessment said the cost of shielding consumers is estimated at about ₹1.23 lakh crore, including the effect of excise duty reduction. Government estimates put revenue forgone from the duty cut at nearly ₹14,000 crore a month.

This fiscal angle matters because any decision on petrol and diesel prices sits at the intersection of consumer relief, oil company balance sheets and government revenue. A sharp cut in pump prices would benefit households and transporters, but it could slow the recovery of oil retailers and reduce the government’s ability to rebuild revenue buffers.

Petroleum minister Hardeep Singh Puri said on X that the government had protected Indian consumers from the global energy shock despite severe supply disruptions. He pointed to diversified crude sourcing, expanded import infrastructure and investments in pipelines and storage as factors that helped India avoid shortages during the disruption.

Puri also said India maintained uninterrupted supplies despite the closure of the Strait of Hormuz. The government’s position is that consumers were insulated from the full impact of the crisis and India avoided the kind of fuel rationing seen in some other countries. That message suggests the Centre may prioritise stability over immediate price reductions.

For consumers, the key signal will be whether diesel losses narrow further and petrol margins remain positive for a sustained period. If crude stays below $70 and supply risks continue to ease, the case for reviewing pump prices will strengthen. For now, lower oil prices have reduced pressure on the system, but they have not yet translated into cheaper fuel.