Pump Prices May Require Further Increases to Reach Pre-Crisis Levels

Fuel Price Hikes Loom as India's Oil Marketing Companies Struggle with Rising Crude Costs

India's oil marketing companies may need to increase fuel prices by approximately 20 percent from current levels if they were to return to last year's levels, according to a recent analysis by Moneycontrol.

In July 2025, the Indian crude basket averaged $70.95 per barrel, while the dealer price of petrol stood at Rs 52.09 per litre. At that time, the Centre collected Rs 22.88 per litre through customs and excise duties, in addition to dealer commissions of Rs 4.40 and value-added tax of Rs 15.40 per litre.

The situation has changed dramatically since then. The Indian crude basket has risen by 61 percent to $113.99 per barrel, while the rupee has weakened to 94.84 per dollar from 87.51, increasing the landed cost of crude by 74 percent in rupee terms.

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The Centre is collecting no customs or excise duty on petrol, and oil marketing companies are absorbing much of the increase. The dealer price of petrol has risen to Rs 74.97 per litre, which is exactly Rs 22.88 higher than in July 2025.

If crude prices rise to around $125 per barrel, about 9.7 percent above current levels and 76 percent higher than in July 2025, under-recoveries would widen substantially. At that price, losses would rise to Rs 24.38 per litre on petrol and Rs 31.44 per litre on diesel, compared with estimated current under-recoveries of Rs 15.62 per litre and Rs 22.68 per litre, respectively.

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Even small fuel price hikes could reduce losses. Currently, monthly under-recoveries on petrol and diesel are estimated at around Rs 55,416 crore, assuming losses of Rs 14 per litre on petrol and Rs 42 per litre on diesel. A Rs 2 per litre increase in petrol prices would reduce total monthly under-recoveries to Rs 52,105 crore. A Rs 4 increase would lower losses to Rs 48,794 crore, while even a Rs 10 increase would still leave under-recoveries of nearly Rs 38,863 crore.

India consumed approximately 3.7 million tonnes of petrol and 8.5 million tonnes of diesel per month over the past two months, highlighting the scale of the burden.

The arithmetic underscores how little room policymakers have to keep retail fuel prices unchanged. Each rupee increase at the pump now delivers a direct fiscal or corporate benefit. The issue has gained urgency as policymakers weigh whether to pass through higher global oil prices to consumers amid escalating tensions in West Asia.

Recent price adjustments suggest some pass-through may already be underway. Mahanagar Gas Ltd raised CNG prices by Rs 2 per kg on May 14, while wholesale inflation accelerated to a 42-month high of 8.3 percent in April, driven in part by a 67 percent jump in petroleum and natural gas prices.