Fuel prices explained: Why oil companies are still losing ₹19 on diesel and ₹6 on petrol

State-run oil marketing companies (OMCs) lost an estimated ₹18.9 on every litre of diesel and ₹6 on every litre of petrol sold during the April-June quarter, according to ICICI Securities. The losses came despite domestic pump prices remaining largely unchanged, highlighting how fuel pricing works and why crude oil prices alone do not determine OMC profitability.

According to the brokerage, OMCs earned margins of ₹8.2 per litre on diesel and ₹10.3 per litre on petrol in the corresponding quarter a year ago. However, the surge in international crude oil and refined fuel prices during the latest quarter was not fully reflected in retail prices, pushing marketing margins into negative territory.

How are petrol and diesel priced?

The price consumers pay at fuel stations is made up of several components. At the refinery gate, petrol and diesel are valued broadly in line with international prices of refined fuels. Oil companies then add freight and logistics costs, marketing and distribution expenses, dealer commissions and applicable taxes before arriving at the final pump price.

 

| Component           | What it includes                            |
| ------------------- | ------------------------------------------- |
| Refinery price      | Linked to international refined fuel prices |
| Freight & logistics | Transportation and distribution costs       |
| Dealer commission   | Commission paid to fuel station dealers     |
| Taxes               | Central excise duty and state VAT           |
| Retail margin       | Profit or loss earned by OMCs               |

When international fuel prices rise but pump prices are not revised proportionately, OMCs' retail margins shrink. Conversely, if global prices fall while retail prices remain unchanged, companies earn higher margins.

Why are losses rising?

ICICI Securities attributed the latest losses to the mismatch between rising international fuel prices and relatively stable domestic pump prices during April-June.

Petroleum and Natural Gas Minister Hardeep Singh Puri recently said OMCs incurred losses of around ₹75,000 crore during the quarter by selling petrol, diesel, liquefied petroleum gas and aviation turbine fuel below market rates.

 

How a litre of petrol or diesel is priced

Component	What it means
Refinery price	Based on international prices of refined petrol and diesel
Freight & logistics	Cost of transporting fuel to depots and retail outlets
Marketing & distribution	Operational expenses incurred by OMCs
Dealer commission	Commission paid to petrol pump dealers
Taxes	Central excise duty and state VAT
Retail margin	Profit or loss earned by OMCs after selling fuel

 

The current losses mark a sharp reversal from the strong retail margins seen over the past two financial years. According to ICICI Securities, petrol margins had peaked at ₹12 per litre in the third quarter of FY25, while diesel margins reached ₹8.2 per litre in the first quarter of FY26.

 

OMC retail margins (₹ per litre)

Period	Diesel	Petrol
April–June 2026	-18.9	-6.0
April–June 2025	8.2	10.3
June quarter FY25	2.5	4.4
Peak margin (last 2 FYs)	8.2 (Q1 FY26)	12.0 (Q3 FY25)

Source: ICICI Securities

 

Why crude oil isn't the only factor

A common assumption is that petrol and diesel prices should immediately fall whenever crude oil prices decline. In reality, Indian fuel prices are influenced not only by crude but also by international prices of refined petroleum products.

Industry officials say OMCs benchmark petrol and diesel against global refined fuel prices in markets such as Singapore and Dubai. Freight costs, insurance charges and exchange rate movements are also factored into pricing.

The oil minister has also pointed out that fuel sold today is produced from crude purchased weeks earlier, meaning current retail economics often reflect earlier procurement costs rather than prevailing crude prices.

Why analysts disagree

The methodology used to calculate marketing margins has led to differing estimates. While ICICI Securities reported losses during the April-June quarter, some analysts argue margins have since improved as Brent crude has eased to around $72-73 per barrel.

The differing assessments reflect variations in assumptions over inventory costs, international refined fuel prices and the timing of crude purchases. For consumers, however, the takeaway is straightforward: OMC profitability depends on a combination of global fuel prices, taxes, exchange rates and government decisions on pump prices—not crude oil prices alone.