Petrol, diesel, LPG under-recoveries: OMCs may still see profits in Q4, says Emkay

Emkay Global in a latest report on oil & gas sector said oil marketing companies (OMCs) Bharat Petroleum Corporation Ltd  (BPCL), Hindustan Petroleum Corporation Ltd (HPCL), and Indian Oil (IOC) may report profits for March quarter, even as petrol and diesel marketing margins turned negative, at Rs 25 per litre and 45 per liter, respectively, this past fortnight. 

Emkay said auto-fuel under-recoveries for OMCs based on current prices are at a negative Rs 20-27 per litre at integrated levels, implying absolute loss of at least Rs 25,000 crore per month at the lower end. Additionally, the LPG under-recovery at spot price of $800 per mt is Rs 8,000-8,500 crore per month. 

Hence, the total monthly loss run rate is Rs 35,000 crore, with the potential to increase to Rs 50,000 crore, factoring in 5-6 per cent crude price volatility and diesel cracks as high as $70-80 per barrel. Such numbers are unsustainable, Emkay said.

"If the GoI imposes windfall taxes—assuming a maximum USD75/bbl in upstream realisations and $15 per barrel in diesel cracks, Rs 9,000 crore at the lower end can be funded and compensated to OMCs. Still, Rs 25,000 crore losses are likely, and could require a significant Rs 20 per litre adjustment, either in the form of price hikes, or tax cuts, or a mix of both," Emkay said.

The domestic brokerage said due to the imminent state elections, the government may wait another month before planning any comprehensive action if the current crisis continues. "The three OMCs would still see profit in Q4FY26E. For upstream, a $75 per barrel net oil realisation is reasonable, and better than our current assumption of $70 per barrel for FY26E," it said. 

While the Indian crude oil basket hovered above $150 a barrel, the actual import price could be $5-10 a barrel above Dated brent, with Russian floating oil making up a sizable portion and the rest contributed by other sources such as USA, Africa, and potentially Iran (140 million barrel of floating oil), Emkay said. 

"Auto fuel-LPG monthly under-recovery based on current prices for OMCs could range at Rs 35,000-50,000 crore per month. Around Rs 9,000-18,000 crore of this may be funded by windfall taxes, if imposed. The attack on the Ras Laffan LNG facility has led to structural damage in two trains, with Qatar Energy declaring long-term force majeure on customers from certain countries (though it has not named India)," Emkay said.