OMCs Face Challenging FY27 Amid Rising Crude Prices and LPG Under-Recoveries

Challenging Start to FY27 for State-Run Oil Marketing Companies

State-run oil marketing companies (OMCs) are facing a tough beginning to the fiscal year 2026-27, as a surge in crude prices, weak product prices, and a depreciating rupee are expected to weigh heavily on their earnings in the first quarter, according to analysts.

The profitability of public refiners has been impacted by the rising losses on the sale of liquified petroleum gas (LPG). In May, the losses on LPG sales worsened to around Rs 670 a cylinder, up from Rs 170 a month ago. This significant increase in losses is likely to have a negative impact on the earnings of state-run OMCs.

Motilal Oswal, a leading brokerage firm, has estimated a substantial decline in the profit after tax of Indian Oil for FY27. The firm expects a 67 percent decline in profit after tax to Rs 13,000 crore, assuming gross petrol and diesel marketing margin losses of Rs 5 a litre and Rs 2.5 a litre in the first and second quarters, respectively. Similarly, the brokerage estimates a 62 percent decline in Bharat Petroleum's profit after tax at Rs 9,800 crore in FY27.

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The estimated under recoveries on LPG for the first and second quarters are Rs 200 a cylinder and Rs 100 a cylinder, respectively. This indicates a significant increase in losses on LPG sales, which could impact the profitability of state-run OMCs.

The recent hike in petrol and diesel prices to nearly Rs 7.5 a litre in May, due to the Iran war, has further exacerbated the situation. The war has kept Brent crude prices above $100 a barrel for most of the three months that the conflict has been raging. India, which meets around 85 percent of its energy needs through imports, has been severely affected by the weak rupee, which has depreciated around 7 percent this year against the dollar.

The oil ministry has acknowledged the concerns over the hike in prices of petrol and diesel, stating that even after the increase, OMCs are losing around Rs 550 crore a day on account of elevated crude prices. If disruptions in the Strait of Hormuz persist and crude prices remain elevated, further hike in retail prices will be necessary, according to analysts.

Table: Estimated Profit After Tax of State-Run OMCs

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The challenging start to FY27 for state-run OMCs is likely to continue, with ongoing heavy losses and elevated crude prices impacting their profitability. The situation is expected to remain challenging in the first quarter, with analysts predicting further hikes in retail prices if crude prices remain elevated.