Hours after Prime Minister Narendra Modi exhorted citizens to reduce energy consumption, limit gold purchases and stop travelling abroad to conserve foreign exchange in the wake of a spike in energy costs after the West Asia war, Petroleum Minister Hardeep Singh Puri said state-run oil marketing companies’ (OMCs) losses from retail fuel sales are expected to hit a massive Rs 1 lakh crore in the April-June quarter, with “under-recoveries” being twice as much.
“India is among very few countries which have not raised energy prices and has maintained steady supplies to the citizens even as we see crises unfold in many parts of the world. Our energy sector is absorbing the brunt of the impact,” Puri wrote on X.
The statement is believed to signal an imminent hike in retail prices of auto fuels. The prices have been on hold since the onset of the war in late February, though the disruption of the Strait of Hormuz led to a sudden spike in crude prices.
Under-recoveries are notional losses incurred by oil companies when selling fuel below the cost required to import or produce it. They are computed via the formula of Trade Parity Price which is weighted average of 80% import parity and 20% export parity.
What do analysts say?
Analysts have pointed out that for OMCs, the refining segment remains stable, supported by adequate margins due to healthy product cracks. The outlook on the fuel retailing segment, however, is negative driven by the steeply negative marketing margins.
Emkay Global has estimated a Rs 37,000-38,000 crore hit for the three PSU OMCs in Q1FY27 driven by a combination of negative marketing margins, volatile refining spreads, and continued LPG under-recoveries.
The government had reduced excise duties on retail fuel to shield OMCs, incurring revenue losses of Rs 14,000 crore in a month.
Daily marketing losses of OMCs are learnt to be up to Rs 1,600-1,700 crore at present as crude oil prices remain above $100 per barrel. At current levels, OMCs are estimated to be losing around ₹18 per litre on diesel and ₹14 per litre on petrol, while domestic LPG sales are resulting in loss of nearly ₹400 per cylinder.
Retail fuel prices remained largely frozen despite the sharp rise in global crude and product prices since late February.
According to Petroleum Planning and Analysis Cell (PPAC) data, the Indian crude basket averaged $113.49 per barrel in March and $114.48 per barrel in April. The May average so far stands at $104.68 per barrel, while the Indian basket was priced at $102.52 per barrel on May 8.
“Icra estimates that at crude price of $120-125/barrel and considering past 10-year average crack spreads of auto fuels, oil marketing companies incur a loss of about ₹1,000 crore daily on the sale of auto fuels and domestic LPG. This high level of loss is unsustainable and would need to be addressed if the scenario of elevated crude oil and product prices persists for an elongated period,” said Prashant Vasisht, Senior Vice President and Co-Group Head at Icra Ltd.
Grant Thornton Bharat estimated that cumulative under-recoveries of state-run OMCs have already crossed ₹1 lakh crore in around 10 weeks since the conflict escalated. According to its estimates, negative marketing margins have widened to around ₹13-15 per litre on petrol and ₹17-19 per litre on diesel, while LPG under-recoveries could touch ₹80,000 crore during the current fiscal if elevated crude prices persist. “At the current run-rate, losses imply an annualised impact of more than ₹4-5 lakh crore, which is incompatible with OMC balance sheets and capital requirements,” Mitra said.