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Spot LNG prices have climbed 6% week-on-week to $32 per mmBtu, while lower European gas storage levels and persistent geopolitical disruptions threaten to keep energy costs high. Jefferies warns that domestic affordability is already stretched.
Global liquefied natural gas (LNG) prices are expected to remain elevated through the winter months, raising concerns over affordability in India’s domestic gas market, as tightening global supplies and geopolitical disruptions continue to put pressure on energy prices, according to a report by Jefferies.
Spot LNG prices rose 6 per cent week-on-week to an average of $32 per million British thermal units (mmBtu), reflecting tightening supply conditions ahead of the winter demand season.
The report highlighted that gas storage levels across the European Union (EU) currently stand at 75 per cent, significantly lower than the 83 per cent recorded during the corresponding period last year.
Lower inventory levels could intensify competition for LNG cargoes as winter demand picks up, keeping international prices elevated and increasing the cost of imported gas for countries such as India.
“Domestic affordability is stretched at current prices,” Jefferies said, adding that it expects gas prices to remain elevated heading into winter.
West Asia disruptions continue to weigh on oil markets
Beyond LNG, disruptions in global crude oil markets are adding to the pressure on energy costs, despite a recovery in Middle Eastern exports.
According to Jefferies, crude oil exports from the Middle East, excluding Iran, have recovered to more than 90 per cent of their pre-war levels. However, the physical crude premium rose 8 per cent week-on-week to $9 per barrel last week amid renewed attacks in the region.
More from BusinessCrude oil in transit has also reached an all-time high, as ship-to-ship transfers are keeping oil aboard tankers for longer periods and importers are increasingly opting for longer shipping routes to diversify supplies away from the Middle East.
These disruptions have kept freight costs significantly above pre-conflict levels. Although freight rates declined 3 per cent week-on-week, they remain nearly eight times higher than levels recorded at the beginning of the conflict.
Freight costs now account for more than 25 per cent of the landed cost of crude oil, compared with just 3 per cent before the conflict.
Jefferies warned that shipping costs could remain elevated in the near term amid continued attacks on oil tankers.
Russian oil discounts narrow, adding to India’s energy bill
For India, the combination of elevated crude prices and narrowing discounts on Russian oil is increasing financial pressure on oil marketing companies (OMCs).
The discount on Russian Urals crude has narrowed sharply to $2 per barrel against Brent, compared with $14 per barrel at the end of February.
Meanwhile, the discount on Dubai crude relative to Brent widened sixfold week-on-week to $4 per barrel.
Jefferies said crude procurement costs for Indian OMCs remain broadly aligned with the Indian crude basket price of $118 per barrel, resulting in substantial marketing losses on petrol and diesel.
Based on the 15-day average pricing mechanism, the brokerage estimates current marketing losses at around Rs 25 per litre for petrol and Rs 37 per litre for diesel.
The developments could complicate the operating environment for fuel retailers, particularly if international crude prices and transportation costs remain elevated.
Refinery disruptions support petrochemical margins
Supply disruptions are also reshaping the global refining and petrochemical markets.
Ukrainian attacks on Russian refining infrastructure have reduced Russian exports, tightening the market for middle distillates such as diesel and other refined petroleum products.
Jefferies expects the normalisation of supply chains to take time, supporting elevated refining margins through FY27.
Meanwhile, disruptions to petrochemical supplies from the Middle East have supported higher margins, with two major facilities each in Iran and Saudi Arabia suffering damage. Naphtha shipments from the Middle East to Northeast Asia have also been affected.
Consequently, average margins across polyethylene (PE), polypropylene (PP) and polyethylene terephthalate (PET) have risen 55 per cent compared with February-end levels.
Jefferies said the improvement in petrochemical margins is supporting the profitability of Reliance Industries’ oil-to-chemicals (O2C) business.
The broader outlook, however, remains sensitive to geopolitical developments, shipping disruptions and the availability of global energy supplies. For India, persistently high LNG prices could add to the cost of imported energy at a time when affordability in the domestic market is already under pressure.
