Oil Marketing Companies Report Estimated Daily Losses of Nearly Rs 600 Crore Amid Ongoing Fuel Price Hikes

State-Run Oil Marketing Companies Continue to Suffer Losses Despite Price Hikes

The state-run oil marketing companies (OMCs) are still incurring losses of around Rs 600 crore a day, despite the recent hike in petrol and diesel prices on May 25. This comes after the fourth price increase in 10 days, where petrol prices rose by Rs 2.61 a litre and diesel by Rs 2.71 per litre.

The cumulative rise in petrol and diesel prices now stands at nearly Rs 7.5 a litre, following the resumption of daily revisions after a prolonged freeze. In comparison to the global price increase, which ranges from 22 percent for motor spirit (MS) to 27 percent for high-speed diesel (HSD), the hike in India is significantly lower. For MS, it is 7.7 percent, and for HSD, it is 8.6 percent, according to Sujata Sharma, a joint secretary in the petroleum ministry.

However, the government has taken measures to mitigate the losses. The excise duty on petrol and diesel has been reduced by Rs 10 per litre, resulting in a revenue impact of Rs 14,000 crore. Despite these efforts, OMCs were still incurring losses of Rs 1,000 crore a day before the price hike, which has now reduced to slightly less than Rs 600 crore per day.

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According to Prashant Vasisht, senior vice president and co-group head, corporate ratings, ICRA, the under-recoveries of oil marketing companies remain stubbornly high due to increasing losses in domestic LPG sales and a high premium to the crude marker. The average price at which refiners import oil has increased to $107.84 in May, up from $69.01 in February before the war broke out.

The Brent crude price remained volatile in April, dropping to around $90 a barrel on April 17 after a temporary ceasefire was announced, but hitting $126.41 a barrel on April 30 on fears of renewed hostilities. The monthly average was around $117 a barrel. Despite the recent price hikes, retail petrol and diesel prices in India have remained largely unchanged since early April 2022, compressing marketing margins and increasing pressure on OMC balance sheets.

The government has prioritized meeting domestic market requirements and will continue to source crude that is technically and commercially fitting for the refiners, according to Sharma.

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