Fuel Prices Must Increase by Another 16 Percent for Oil Retailers to Match Pre-War Profit Margins

Fuel Prices to Rise Further by 16 Percent to Return to Last Year's Profit Levels

Oil companies will have to increase fuel prices by an additional 16 percent to return to last year's profit levels, according to a Moneycontrol analysis. This hike comes on the heels of the Rs 3 increase on May 15, which raised petrol prices in Delhi to Rs 97.77 and diesel to Rs 90.67 per liter.

The analysis reveals that the Indian crude basket averaged $70.95 a barrel in July 2025, while the dealer price of petrol stood at Rs 52.09 per liter. At that time, the Centre collected Rs 22.88 per liter in customs and excise duties, in addition to dealer commissions of Rs 4.40 and value-added tax of Rs 15.40 per liter.

Crude Prices and Currency Fluctuations

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Since then, the crude basket has risen 61 percent to $113.99, while the rupee has weakened to 94.84 a dollar from 87.51. This has resulted in a 74 percent increase in the landed cost of crude in rupee terms.

The Centre is currently collecting no customs or excise duty on petrol, and oil marketing companies (OMCs) have continued to absorb much of the increase.

Estimated Losses and Under-Recoveries

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The analysis suggests that if crude prices rise to around $125, about 9.7 percent from the current level and 90.7 percent higher than July 2025 in rupee terms, under-recoveries would widen substantially. At that price, losses would rise to Rs 21.48 per liter on petrol and Rs 28.58 per liter on diesel, compared to estimated current under-recoveries of Rs 12.72 and Rs 19.82, respectively.

Impact of Price Hikes on Under-Recoveries

Currently, monthly under-recoveries on petrol and diesel are estimated at around Rs 55,416 crore, assuming losses of Rs 14 per liter on petrol and Rs 42 per liter on diesel. A Rs 3 increase in petrol would reduce monthly under-recoveries to Rs 50,450 crore, saving nearly Rs 5,000 crore a month. Another Rs 4 increase would lower losses to Rs 43,828 crore, while even a Rs 7 increase would still leave under-recoveries of nearly Rs 38,863 crore.

India consumed about 3.7 million tonnes of petrol and 8.5 million tonnes of diesel a month over the past two months, highlighting the scale of the burden and the little room policymakers have to keep retail fuel prices unchanged. Each rupee increase at the pump now delivers a direct fiscal or corporate benefit.

Wholesale inflation accelerated to a 42-month high of 8.3 percent in April, driven in part by a 67 percent jump in petroleum and natural gas prices.