Fuel Prices Rise by 3 Rupees, Providing Temporary Reprieve to Oil Companies Amid Ongoing Daily Losses of 750 Crore Rupees.

Petrol and Diesel Prices Hike Trims State-Run Oil Companies' Daily Losses by 25%

A recent Rs 3-per-litre increase in petrol and diesel prices has helped state-run oil marketing companies reduce their daily losses by nearly a quarter, lowering overall losses to around Rs 750 crore per day from Rs 1,000 crore, according to a senior oil ministry official.

The decision to raise petrol and diesel prices by Rs 3 per litre was made after a sharp rally in oil prices following the Iran conflict disrupting flows through the Strait of Hormuz, pushing up costs for oil marketing companies and increasing pressure on government finances. International oil prices rose sharply after the US-Israeli war against Iran triggered the largest-ever oil supply disruption.

The state-owned oil companies continued to sell fuel at two-year-old rates till May 15, when prices of petrol and diesel were raised by Rs 3 per litre. This increase followed daily losses, climbing to an unprecedented Rs 1,000 crore per day. The losses in a quarter rose to Rs 1 lakh crore - enough to wipe out earnings of an entire year.

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Despite the price hike, elevated global crude prices and a weak rupee continue to keep pump rates below cost-recovery levels. There "still is Rs 750 crore a day under-recovery", according to Sujata Sharma, Joint Secretary in the Ministry of Petroleum and Natural Gas.

Analysts said the decision to raise petrol and diesel prices by Rs 3 per litre will provide only limited relief to state-run fuel retailers, while adding modest inflationary pressure and doing little to offset mounting losses from elevated global crude prices.

According to Radhika Rao, Senior Economist & Executive Director, DBS Bank, higher pump prices were likely to moderate fuel demand and reduce the import burden, while estimating the increase could add 15-25 basis points to headline inflation, excluding second-round effects.

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While Prashant Vasisht of Icra said the increase was insufficient to restore profitability for OMCs if crude prices remain elevated, Crisil's Sehul Bhatt described the increase as a "meaningful, if partial, step" toward reversing one of the longest under-recovery cycles in recent years.

"At their peak, oil marketing companies were absorbing losses of Rs 23-30 per litre on petrol and diesel, translating to a combined daily loss of Rs 1,300-1,400 crore," Bhatt said. According to Crisil estimates, government excise duty relief and the latest price increase have narrowed under-recoveries to about Rs 10 per litre on petrol and Rs 13 on diesel, though cumulative losses since the start of the conflict are expected to exceed Rs 1 lakh crore by the end of May.