India's Oil & Gas Sector Faces Pressure from High Crude, LNG, and Freight Costs

India's oil and gas sector is currently under significant pressure due to a confluence of rising crude oil and liquefied natural gas (LNG) prices, compounded by increased freight costs. These factors are squeezing the marketing margins of companies within the sector.

The fallout from the Iran war has disrupted global oil and LNG trade flows, contributing to the price surge. While higher refining margins have provided some relief, gasoline and diesel marketing margins remain in negative territory. The brokerage Equirus noted that elevated LNG prices in Asia are likely to lead to softer import volumes in September.

Asia's spot LNG price has climbed to its highest point since 2022, reflecting increased competition for winter gas supply between Europe and Asia and uncertainty surrounding supply from the Middle East. This price surge represents a 61% increase from a year ago and a 22% rise over the past three months.

Consequently, India's LNG imports are expected to decrease this month compared to strong arrivals in August. The high LNG prices are also impacting major gas consumers in India, keeping their costs substantially elevated.

Simultaneously, India's crude oil import bill has escalated significantly in recent months. This rise is attributed to reduced oil flows from the Middle East and heightened shipping risks in the Strait of Hormuz. Freight rates on the crucial route from Saudi Arabia's Ras Tanura to India have seen a dramatic increase of over 400% since late February.

India's crude oil import costs rose by 60% in the April-June quarter compared to the same period last year, despite slightly lower import volumes. This upward trend continued into the third quarter, with the July import bill showing a 41% increase year-on-year.