NEW DELHI: The three state-run oil marketing companies (OMCs) are losing an estimated Rs 530 crore a day among them on fuel marketing as the sharp surge in crude and international product prices collides with unchanged domestic pump prices, putting pressure on profitability, cash flows and working-capital requirements, rating agency Icra said.
Marketing margins of Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) are currently estimated at negative Rs 8 a litre on petrol and negative Rs 9 a litre on diesel. Domestic liquefied petroleum gas (LPG) is adding to the strain, with under-recoveries at around Rs 300 per cylinder in September.
“Without any additional retail price revisions, the margin will remain under pressure while crude and product prices stay elevated,” Prashant Vasisht, senior vice-president and co-group head, corporate sector ratings, Icra, said during a webinar on Wednesday.
The pressure intensified as the Indian crude basket surged to $117.4 a barrel on September 21, from an average of around $66/bbl in 2025-26. Icra attributed the jump to the renewed US-Iran conflict, shutdown of Saudi Arabia’s East-West pipeline and heightened Houthi activity in the Red Sea, which have disrupted key oil supply routes in West Asia.
“The escalation of the West Asian conflict and disruptions to key oil supply routes has led to a sharp spike in crude oil prices,” Vasisht said. The surge has resulted in “sizable marketing losses and LPG under-recoveries” for OMCs, he said.
The marketing losses come even as refining economics remain relatively strong. Singapore gross refining margins have stayed above $10 a barrel since the start of the West Asia crisis, supported by refinery and product-supply disruptions, inventory drawdowns and outages across West Asian refining capacity. Damage to Russian refineries has tightened product markets further.
“Overall, the GRMs have remained healthy. Singapore GRMs were around $10 per barrel in September 2026,” Vasisht said.
Icra’s analysis showed gasoline crack spreads remaining elevated, while gasoil cracks were exceptionally high amid tight supply. Aviation turbine fuel cracks have also remained strong because of constrained middle-distillate availability.
Gasoline cracks remained in the $15-20 per barrel range in September, while diesel cracks were above $60 per barrel and ATF cracks exceeded $50 per barrel, according to Icra. “Diesel, we have seen exceptionally high cracks… middle distillate markets have become very tight,” Vasisht said, citing lower refinery output, reduced West Asian supplies and restrictions on Russian gasoil exports.
Higher product prices prompted the government to introduce Special Additional Excise Duty (SAED) on diesel and aviation turbine fuel from March 27, subsequently extending it to petrol. For domestic supplies, SAED is adjusted in the refinery transfer price, reducing the effective product cost for OMC marketing divisions. The levy has remained at Rs 20 a litre on diesel and Rs 15 a litre on ATF since September 16.
Icra said SAED partly shifts the benefit of strong refining margins towards the marketing business. “The levy partly redistributes the earnings from the refining to the marketing segment, providing some cushion to the marketing losses,” Vasisht said. However, auto-fuel under-recoveries have remained high despite that relief.
LPG remains another major drag. The cumulative negative LPG buffer of OMCs climbed to Rs 61,940 crore as of June 30, as higher international LPG prices following West Asian supply disruptions were not fully passed on to consumers.
The estimated loss stood at around Rs 500 per domestic cylinder in the first quarter of FY27, before easing to about Rs 300 in September.
Icra expects losses to rise further if international prices remain elevated without a commensurate increase in domestic prices or additional government compensation. “At current retail prices, the average loss per cylinder is somewhere around Rs 300 per cylinder,” Vasisht said, adding that restricted shipping through the Strait of Hormuz and higher freight and insurance costs have also pushed up costs.
The government had announced a Rs 30,000-crore grant for LPG losses in August 2025, with disbursement beginning in November 2025. Icra said the monthly disbursement was around Rs 2,500 crore.
The rating agency points to continued pressure if crude remains above $100/bbl. Icra modelled three Brent scenarios for the second half of FY27 — $85-95, $105-115 and $130-140 a barrel — along with possible petrol and diesel retail price increases of up to Rs 6 a litre. It sees significant auto-fuel under-recoveries at crude prices above $100/bbl.
According to Icra, if Brent averages $105-115/bbl in H2FY27 and petrol and diesel prices remain unchanged, OMCs could face FY27 under-recoveries of around Rs 64,000 crore. At $130-140/bbl, the corresponding under-recovery could rise to about Rs 1.91 lakh crore.
“Generally, what we observe is significant under-recovery would be there on auto fuels with crude being above $100 per barrel,” Vasisht said.
“Elevated crude prices and unchanged domestic fuel prices would put pressure on profitability and cash flows of OMCs. The same would also elevate their short-term borrowings for increased working capital requirements,” he added.
Source: The Financial Express
