Government Considers Fuel Price Hike Amid Estimated Losses of Rs 1 Lakh Crore for Oil Marketing Companies

Fuel Price Hike Imminent as India Faces Global Crude Trends and Fiscal Pressures

Indian oil marketing companies (OMCs) are facing mounting pressure as under-recoveries are projected to reach Rs 2 lakh crore this quarter, with losses estimated at around Rs 1 lakh crore. This comes as crude prices continue to surge amid the ongoing US-Iran deadlock.

The US-Iran War and Its Impact on Oil Prices

The US-Iran war has entered its third month, and the latest peace effort was dealt a blow after American President Donald Trump slammed as "totally unacceptable" Iran's response to a proposed agreement to end hostilities. The average price at which refiners import oil has increased to $104.68 in May against $69.01 in February before the war broke out, according to data from the Petroleum Planning and Analysis Cell.

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Impact on Indian Oil Marketing Companies

State-run oil marketing companies are buying crude, gas, and LPG at a higher cost in the light of the West Asia crisis but are selling final products at a lower cost, leading to losses of up to Rs 1,000 crore a day. The losses are expected to continue as crude prices remain above the comfortable $65-70/bbl range.

Possible Fuel Price Hike

Official sources have earlier told Moneycontrol that state-run fuel retailers may raise petrol and diesel prices in the coming days to offset mounting losses. The Prime Minister has urged citizens to curtail use of petrol and diesel, use public transport where possible, and car pool as much as possible. However, analysts say that diesel consumption is structurally harder to cut given its critical role in goods transportation.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Comparison of Crude Prices

India's Oil Stock and Strategic Reserves

Analysts point out that India's oil stock (including strategic & commercial) capacity is around 74 days, which covers almost 60 days of oil supply, with strategic reserves capacity of around 9.5 days. In this backdrop, the Prime Minister's call to reduce fuel consumption is aimed at moderating demand pressures.

Government's Approach

The government is expected to balance inflation, fiscal pressures, and energy pricing while deciding on the timing and extent of the fuel price hike. Discussions are ongoing between the finance and petroleum ministries and oil marketing companies.