Indian Oil Marketing Companies (OMCs) are currently grappling with substantial financial setbacks, reportedly incurring daily losses estimated at Rs 530 crore. This dire situation, highlighted by rating agency ICRA, stems from a dramatic surge in crude oil prices globally, juxtaposed with stagnant domestic retail fuel prices.
Soaring Crude Prices and Static Retail Rates
The Indian crude basket escalated to $117.4 per barrel (bbl) as of September 21, a significant jump from the 2025-26 average of approximately $66/bbl. Despite this sharp increase in input costs, retail prices for petrol and diesel in India have remained unchanged. This disparity has led to severe negative marketing margins for OMCs, estimated at Rs 8 per litre for petrol and Rs 9 per litre for diesel.
Furthermore, under-recoveries on LPG cylinders stood at around Rs 300 per cylinder in September 2026, following an earlier peak of Rs 500 in Q1 2026-27. The cumulative negative LPG buffer surged to Rs 61,940 crore by June 30, 2026, as international price hikes were not fully passed on to consumers.
Geopolitical Tensions Drive Crude Spike
The recent escalation in crude oil prices is primarily attributed to heightened geopolitical tensions and supply disruptions in West Asia. Factors contributing to this surge include renewed conflict between the US and Iran, the shutdown of Saudi Arabia's East-West pipeline, and increased Houthi activities in the Red Sea.
“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,” stated Prashant Vasisht, Senior Vice-President and Co-Group Head, Corporate Sector Ratings, ICRA.
Impact on OMC Profitability and Operations
These elevated crude prices, combined with unchanged domestic fuel prices, are placing immense pressure on the profitability and cash flows of OMCs. The situation is also expected to necessitate increased short-term borrowings to meet working capital requirements. The financial performance of OMCs in 2026-27 will heavily depend on future crude prices, product cracks, any retail price revisions, and potential government support for LPG under-recoveries.
Global Market Dynamics and Export Levies
Concurrently, Singapore gross refining margins (GRM) have remained above $10/bbl since the onset of the West Asia crisis. This strength is supported by refinery and product supply disruptions, inventory drawdowns, and outages across West Asian refining capacity. Additional supply shortages, partly due to damage to Russian refineries, have further tightened product markets and sustained elevated refining margins.
In response to rising product prices, export levies in the form of the Special Additional Excise Duty (SAED) were introduced from March 27, 2026, on diesel and aviation turbine fuel (ATF), later extended to petrol. These levies, which stood at Rs 20/litre on diesel and Rs 15/litre on ATF since September 16, 2026, are adjusted in the refinery transfer price for domestic supplies, effectively reducing product costs for the marketing divisions of OMCs.