A ₹3-per-litre increase in petrol and diesel prices has helped state-run oil marketing companies trim daily losses by nearly a quarter, reducing overall losses to around ₹750 crore per day from ₹1,000 crore, according to a senior oil ministry official. As reported by Business Standard, the increase followed daily losses that had climbed to an unprecedented ₹1,000 crore per day. The losses in a quarter rose to ₹1 lakh crore - enough to wipe out earnings of an entire year. The price hike, the first in more than four years, came as global crude oil prices surged over 50% due to the West Asia war, prompting the government to allow this price adjustment to contain incremental balance sheet stress rather than restore marketing margins. However, elevated global crude prices and a weak rupee continue to keep pump rates below cost-recovery levels, with ₹750 crore a day under-recovery still persisting. At a news briefing, Sujata Sharma, Joint Secretary in the Ministry of Petroleum and Natural Gas, confirmed that "there still is ₹750 crore a day under-recovery" despite the price increase. Elara Capital now expects further retail fuel price hikes if crude prices remain elevated, as the recent ₹3/litre increase may not be sufficient to offset mounting losses for oil marketing companies.
Despite the price increase, there remains ₹750 crore a day under-recovery, said Sujata Sharma, Joint Secretary in the Ministry of Petroleum and Natural Gas, as reported by Business Standard. At their peak, oil marketing companies were absorbing losses of ₹23-30 per litre on petrol and diesel, translating to a combined daily loss of ₹1,300-1,400 crore. According to Crisil estimates, government excise duty relief and the latest price increase have narrowed under-recoveries to about ₹10 per litre on petrol and ₹13 on diesel. However, Elara Capital estimates that companies are still losing around ₹6.40 per litre on diesel and ₹8.10 per litre on petrol on an integrated basis, even after accounting for gains from refining margins and higher crude costs. The hike offers operational breathing room, bringing residual under-recoveries down to ₹10 and ₹13 per litre respectively, but the quantum of this hike will only partially ease the pressure as the gap between retail fuel prices and market prices remains much wider. Elara Capital notes that diesel continues to be the largest earnings drag for OMCs, while relief on petrol remains incomplete.
According to Elara Capital's comprehensive analysis, the ₹3-per-litre price hike has delivered significant relief across fuel segments. Annualised integrated petrol and diesel losses are expected to reduce from around ₹1.42 lakh crore to ₹1.07 lakh crore, translating to a relief of nearly ₹34,500 crore for the sector. Annual diesel-related losses are projected to decline from around ₹92,300 crore to ₹67,200 crore, while petrol-related losses are estimated to fall from around ₹49,300 crore to ₹39,900 crore. On a per-litre basis, diesel's gross margin losses narrowed from about ₹27.5 per litre to ₹25.2 per litre, with integrated diesel losses reducing to around ₹6.4 per litre from ₹8.80 per litre earlier. Petrol's retail gross margin losses declined from around ₹15.5 per litre to ₹13.7 per litre, with integrated petrol losses reducing to about ₹8.10 per litre from ₹10 per litre earlier. However, Elara Capital notes that diesel continues to be the largest earnings drag for OMCs, while relief on petrol remains incomplete. According to Crisil's Sehul Bhatt, the increase represents a "meaningful, if partial, step" toward reversing one of the longest under-recovery cycles in recent years, though cumulative losses since the start of the conflict are expected to exceed ₹1 lakh crore by the end of May.
The fuel price increase comes after a sharp rally in oil prices, following the Iran conflict disrupting flows through the Strait of Hormuz, pushing up costs for oil marketing companies. According to Radhika Rao, Senior Economist & Executive Director, DBS Bank, higher pump prices were likely to moderate fuel demand and reduce the import burden, while estimating the increase could add 15-25 basis points to headline inflation, excluding second-round effects. However, analysts noted the decision will provide only limited relief to state-run fuel retailers while adding modest inflationary pressure. Prashant Vasisht of Icra said the increase was insufficient to restore profitability for OMCs if crude prices remain elevated, while Crisil's Sehul Bhatt described the increase as a "meaningful, if partial, step" toward reversing one of the longest under-recovery cycles in recent years. Latest data shows petrol consumption rose 6.36% and LPG demand declined 16.2% in April, reflecting the impact of higher fuel prices on consumer behavior. Elara Capital believes that price hikes are not enough to fully neutralise the current crude oil price shock, as every $10 per barrel increase in crude oil prices could raise petrol and diesel losses by around ₹6 per litre and LPG losses by about ₹10.2 per kg.
A bailout package, in the form of a government subsidy to make up for losses state-owned oil companies are incurring on selling petrol, diesel and cooking gas LPG below cost, is "still not on the table," Sharma said at a news briefing, as reported by Business Standard. To keep the domestic market insulated, the state-owned oil companies continued to sell fuel at two-year-old rates till May 15, when prices of petrol and diesel were raised by ₹3 per litre. The government continues to manage supply and prevent artificial scarcity through surprise inspections, with refineries operational and no disruptions reported in fuel supply. The government had slashed excise duty by ₹10 per litre on petrol and diesel late March to blunt the impact of high international prices on the OMCs, but the retailers continue to bleed. The excise duty cut has resulted in the government foregoing revenue of about ₹14,000 crore a month, or about ₹1.7 lakh crore on an annualised basis. Elara Capital notes that crude prices continue to be the key concern for India, with Brent Crude surging past the $111/bbl mark and Nymex rates nearing $110/bbl, creating multi-fold economic headwinds for the world's third-largest crude importer.
