Fuel price freeze spells trouble for oil companies: Loss on petrol rises to Rs 18 per litre, diesel to Rs 35 per litre

West Asia war: Losses faced by state-owned oil companies on petrol and diesel sales have increased as pump prices remain unchanged despite rising input costs, industry sources said.

Petrol losses have risen to Rs 18 per litre, while diesel losses are at Rs 35 per litre. Indian Oil Corporation, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd have kept retail prices frozen since April 2022, even though global crude oil prices have fluctuated sharply during this period.

After the Russia-Ukraine conflict, crude prices rose above USD 100 per barrel, eased to around USD 70 early this year, and surged again to about USD 120 last month amid geopolitical tensions involving the US, Israel and Iran. At the peak last month, the three firms reportedly incurred losses of about Rs 2,400 crore daily, which narrowed to around Rs 1,600 crore after the government reduced excise duties on petrol and diesel by Rs 10 per litre each.

Industry sources noted that the excise duty cut partly offset losses and was not passed on to consumers. Losses in March erased gains made in January and February, with the firms expected to post losses for the January-March quarter.

A Macquarie Group report on India Fuel Retail estimated that at crude prices of USD 135-165 per barrel, oil marketing companies lose Rs 18 and Rs 35 per litre on petrol and diesel sales respectively. The report also stated that every USD 10 increase in crude prices adds about Rs 6 per litre to marketing losses.

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Macquarie flagged the possibility of retail fuel price hikes after upcoming state elections in West Bengal and Tamil Nadu, stating there is a risk of higher pump prices post elections in April.

India imports about 88 per cent of its crude oil needs, with 45 per cent coming from the Middle East, 35 per cent from Russia and 6 per cent from the United States. Despite this, India remains a net exporter of key petroleum products including diesel, petrol and aviation turbine fuel.

While central excise duties on fuels have declined to Rs 11.9 per litre on petrol and Rs 7.8 per litre on diesel, even their complete removal would not fully offset losses at current crude prices. State-level VAT rates have largely remained stable.

The report highlighted potential fiscal impacts of further tax cuts, estimating that a full rollback of excise duties based on provisional consumption of about 170 billion litres in FY26 could cause an annual revenue loss of around USD 36 billion and widen the fiscal deficit by 80 basis points.

Fuel excise duties’ contribution to government revenue has declined to about 8 per cent in FY26 from 22 per cent in FY17, and now account for less than a fifth of the fiscal deficit, down from a peak of 45 per cent.