Oil Marketing Companies Face Significant Revenue Losses on Petrol and Diesel Sales

Oil Marketing Companies Face Pressure from Elevated Crude Prices

Elevated crude prices, exacerbated by the crisis in West Asia, have outpaced capped retail fuel rates, leading to losses for oil marketing companies. Indian Oil Marketing Companies are selling petrol and diesel at a loss of Rs 14 per litre and Rs 18 per litre, respectively.

The situation is compounded by supply disruptions in the Strait of Hormuz, which handles around 20% of global oil and LNG trade. This has tightened availability of fuels, fertilisers, and chemicals, pushing up prices and increasing cost pressures across downstream industries. Crude prices before the West Asia crisis broke out two months back were around USD 70-72 a barrel.

Rating agency Icra has warned that the stable pump prices for auto fuels amid elevated crude oil prices are impacting the profitability of oil marketing companies (OMCs). At crude prices of USD 120-125 per barrel, marketing margins on petrol and diesel are estimated to be negative Rs 14 a litre and Rs 18 a litre, respectively.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Comparison of Losses

Icra estimates LPG under-recoveries could reach Rs 80,000 crore in FY2027, if current trends persist, while the fertiliser subsidy burden is projected to rise to Rs 2.05-2.25 lakh crore, above the budgeted Rs 1.71 lakh crore. Elevated raw material and energy costs are expected to weigh on profitability across oil marketing, fertilisers, chemicals, and city gas distribution sectors.

The fertiliser sector is also facing sharp cost escalation, driven by higher sulphur and ammonia prices and elevated natural gas costs. Urea pool prices have risen to about USD 19 per million British thermal unit in April 2026 from USD 13 before the crisis.

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

Elevated energy and input costs will likely compress margins across multiple sectors, leading to weaker credit profiles in some cases. Icra expects the pressure on margins and credit profiles to persist in the near term, with any relief contingent on easing geopolitical tensions and normalisation of global supply chains.