State-run oil marketing companies’ LPG under-recoveries are expected to decline by nearly 40% sequentially in the September quarter as international LPG prices soften, providing relief after the West Asia supply shock pushed the burden to Rs 13,700 crore in Q1FY27.
A 40% reduction from the June-quarter level would imply under-recoveries of around Rs 8,200 crore in Q2FY27, though losses on cooking gas are expected to remain sizeable, according to CareEdge Ratings. The cumulative LPG under-recovery of the three major OMCs had risen to about Rs 61,900 crore as of June 30, from Rs 48,200 crore at the end of March.
The sharp build-up followed disruptions to global LPG supplies after the West Asia conflict and closure of the Strait of Hormuz, which widened the gap between procurement costs and regulated retail prices. India imports around 60% of its LPG requirement, leaving domestic retailers exposed to global supply and freight shocks.
The Saudi Contract Price, a key international LPG benchmark, surged nearly 50% to $785 per tonne in Q1FY27 from an average $530 per tonne in FY26. It subsequently eased to $592 in July before rising to $632 in August, providing some relief to sourcing costs.
CareEdge expects under-recovery on domestic LPG to decline from around Rs 500 per cylinder in Q1FY27 to Rs 300 in Q2, with estimates of Rs 500 in July, Rs 190 in August and Rs 240 in September. Domestic LPG prices were raised by an aggregate Rs 89 per 14.2-kg cylinder during March and June, with the current Delhi price at Rs 942.
“The subsequent reduction in LPG sourcing cost on the back of a decline in Saudi CP is expected to moderate LPG under-recoveries by ~40% q-o-q in Q2FY27,” said Richa Bagaria, Associate Director, CareEdge Ratings. She, however, said OMCs may continue to carry a sizeable cumulative under-recovery burden, keeping LPG profitability under pressure.
The supply disruption has also accelerated a structural shift in India’s LPG sourcing. Nearly two-thirds of India’s LPG imports are now sourced from the US, after OMCs diversified away from West Asia. The three retailers had signed a contract in November 2025 to import 2.2 million tonnes, or around 10% of annual imports, from the US Gulf Coast during 2026.
Meanwhile, LPG demand fell about 21% to 2.2 million tonnes a month during March-June, while domestic production rose to 1.4 million tonnes and imports nearly halved to 0.9 million tonnes a month. Import dependence consequently fell to around 35% from 60%. CareEdge expects overall LPG demand to decline around 6% year-on-year in FY27.