Following the imposition of a windfall tax on fuel exports, the Indian government has moved to cap refinery margins at $15 per barrel. The move is designed to offset massive under-recoveries faced by state-run Oil Marketing Companies (OMCs) amid a retail price freeze and surging global crude costs, PTI reported citing sources.
In a significant intervention to stabilize the domestic fuel ecosystem, the government has introduced a mechanism to transfer “bumper” refining gains to the marketing wing.
As the war in West Asia continues to influence the movement of international oil prices in a volatile manner, the disparity between imported costs and domestic retail rates has widened, leading to unprecedented losses for OMCs.
The $15 cap mechanism
According to PTI, refining margins for major players have now been capped at a threshold of $15 per barrel. Any earnings generated by refiners above this limit will now be treated as a “discount” on fuel sold to state-run marketing companies.
This effectively shifts the financial burden from the marketing arms, which have seen retail prices frozen for a long period to the refining units that have benefited from high global product cracks.
To implement this, OMCs have moved away from traditional Import Parity Pricing (IPP) to a discounted Refinery Transfer Price (RTP). On March 26, rates were fixed at discounts of up to ₹60 per litre relative to their imported cost, PTI reported citing sources.
The breakdown of RTP discounts for the first fortnight of April 2026 is as follows:
| Product | Original RTP (per kl) | Applied Discount (per kl) | Adjusted RTP (per kl) |
| Diesel | ₹1,46,243 | ₹60,239 | ₹86,004 |
| ATF | ₹1,27,486 | ₹50,564 | ₹76,923 |
| Kerosene | ₹1,23,845 | ₹46,311 | ₹77,534 |
Note: For the second half of March, the diesel discount stood at ₹22,342 per kl (Source: The numbers have been taken from PTI.)
The ‘Under-recovery’ crisis
The urgency of these measures is underscored by the current level of losses on auto fuels. Unlike cooking gas (LPG), the government does not provide direct compensation to OMCs for losses on auto fuels
The Ministry of Petroleum and Natural Gas (MoPNG) recently highlighted the severity of the situation. In a social media post on April 1, the Ministry noted that with global prices up nearly 100% in a month, PSU OMCs were incurring under-recoveries of:
- Petrol: ₹24.40 per litre
- Diesel: ₹104.99 per litre
Industry impact: Standalone refiners at risk?
While the move seeks to distribute the financial strain across the oil value chain, analysts warn of potential distortions. While integrated PSUs can balance refining gains against marketing losses, independent and private refiners with limited retail exposure may face significant margin compression.
Furthermore, the shift could “distort the commitment of market price” for private players who rely on transparent pricing benchmarks, PTI reported citing sources.