Oil marketing companies are selling petrol and diesel at a loss of ₹14 per litre and ₹18 per litre, respectively, as reported by The Hindu and confirmed by rating agency Icra. The losses occur because elevated crude prices outpace capped retail fuel rates, creating a margin squeeze for oil companies. Icra estimates that at crude prices of USD 120-125 per barrel, marketing margins on petrol and diesel are estimated to be negative ₹14 a litre and ₹18 per litre, respectively. This pricing structure reflects the current market dynamics where energy costs are rising faster than regulated fuel pricing mechanisms, with the continued freeze in retail fuel prices, despite elevated crude levels, eroding profitability for OMCs.
Supply disruptions in the Strait of Hormuz - handling around 20 per cent of global oil and LNG trade - have tightened availability of fuels, fertilisers and chemicals, according to Icra. The crisis has pushed up prices and increased cost pressures across downstream industries. Crude prices before the West Asia crisis broke out two months back were around USD 70-72 a barrel, but have since risen significantly to current levels. Icra Senior Vice President Prashant Vasisht noted that the stable pump prices for auto fuels amid elevated crude oil prices are impacting the profitability of the oil marketing companies. While refiners have increased production and sourced cargoes from alternative markets such as the US and Australia, the cost burden remains substantial.
Beyond fuel losses, the elevated energy prices post West Asia crisis are likely to leave companies with an under recovery of ₹80,000 crore on cooking gas LPG in the current fiscal, according to The Hindu reports and confirmed by Icra. Icra estimates that LPG under-recoveries could reach ₹80,000 crore in FY2027, if current trends persist. With supplies from West Asia constrained and global LPG prices rising, under-recoveries on domestic LPG sales are projected to touch ₹80,000 crore in FY2027. This substantial shortfall in LPG recovery represents a significant financial burden for oil marketing companies operating in the current energy market environment.
The financial pressure extends to government subsidy programs, with fertiliser subsidy projected to rise to ₹2.05 to ₹2.25 lakh crore, as reported by The Hindu. Icra projects that the fertiliser subsidy burden is projected to rise to ₹2.05-2.25 lakh crore, above the budgeted ₹1.71 lakh crore. The fertiliser sector is witnessing a sharp escalation in input costs, particularly for sulphur and ammonia, with gas prices for urea production rising to around $19 per MMBtu in April 2026, compared to $13 before the crisis. This substantial increase in subsidy requirements reflects the broader impact of elevated energy costs on various sectors of the economy, creating additional financial strain for government budgets and subsidy allocation programs.
Elevated raw material and energy costs are expected to weigh on profitability across oil marketing, fertilisers, chemicals and city gas distribution sectors, with limited ability to fully pass on higher costs to end consumers, according to Icra. The rating agency's outlook remains negative for fuel retailing, fertiliser, basic chemicals and petrochemical sectors, while the outlook on crude oil refining segment remains stable. 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. The CGD sector continues to face cost pressures from rising gas prices and rupee depreciation, with margins in the CNG segment expected to remain under pressure as cost increases may not be fully passed on to consumers.
