Why are oil marketing companies facing Rs 530 crore losses daily?

With domestic retail prices remaining unchanged, Oil Marketing Companies' (OMCs) daily loss is estimated at Rs. 530 crore, said rating agency ICRA.

OMCs' marketing margins were estimated at negative Rs. 8/litre on petrol and Rs. 9/litre on diesel currently and under-recoveries stood at around Rs. 300 per LPG cylinder in September 2026. This is after the recent spike in crude oil prices and domestic retail prices of the downstream fuels remaining unchanged.

The Indian crude basket rose to $117.4/barrel (bbl) as on September 21 from the 2025-26 average of around $66/bbl. Crude oil prices have increased sharply in recent weeks amid escalating geopolitical tensions and supply disruptions in West Asia. The surge was driven by renewed US-Iran conflict, the shutdown of the Saudi Arabia East-West pipeline and heightened Houthi activities in the Red Sea.

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“The escalation of the West Asian conflict and disruptions to key oil supply routes have led to a spike in crude prices in recent weeks, resulting in sizeable marketing losses and LPG under-recoveries for oil marketing companies (OMCs). At these levels, the daily loss to the OMCs is estimated at Rs. 530 crore,” said Prashant Vasisht, Senior Vice-President and Co-Group Head, Corporate Sector Ratings, ICRA.

Challenge

Elevated crude prices and unchanged domestic fuel prices would put pressure on profitability and cash flows of OMCs. The same would also elevate their short-term borrowings for increased working capital requirements.

“The impact on OMCs’ earnings in 2026-27 will depend on crude prices, product cracks, retail price revisions, and government support for LPG under-recoveries,” Vasisht added.

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The cumulative negative LPG buffer increased sharply to Rs. 61,940 crore as on June 30, 2026, as the rise in international LPG prices following the West Asian supply disruptions was not fully passed on to consumers.

The estimated loss per domestic cylinder stood at Rs. 500 in Q1 2026-27 and remained at around Rs 300 in September 2026. LPG under-recoveries are likely to rise further if elevated international prices persist without a commensurate increase in domestic selling prices or additional Government compensation.

Singapore gross refining margins (GRM) have remained above $10/bbl since the start of the West Asia crisis, supported by refinery and product supply disruptions, inventory drawdowns and outages across West Asian refining capacity.

Additional supply shortages arising from damage to Russian refineries further tightened product markets, supporting elevated refining margins.

Export levies

As product prices increased, export levies in the form of the Special Additional Excise Duty (SAED) on diesel and aviation turbine fuel (ATF) were introduced from March 27, 2026, and subsequently extended to petrol. For domestic supplies, SAED is adjusted in the refinery transfer price, reducing the effective product cost for marketing divisions of OMCs.

The SAED on these fuels has remained high at Rs. 20/litre on diesel and Rs. 15/litre on ATF since September 16, 2026, reflecting the strong cracks for these fuels.