How Rising Crude Prices Are Impacting Fuel and Fertilizer Costs in India
Fuel Prices Under Pressure
In New Delhi, oil marketing firms are currently facing significant losses, selling petrol at a deficit of Rs 14 per litre and diesel at Rs 18 per litre. This situation arises as soaring crude oil prices exceed the capped retail fuel rates, severely impacting profit margins.
The ongoing crisis in West Asia has led to increased energy prices, which are expected to result in an under-recovery of Rs 80,000 crore for cooking gas (LPG) in the current fiscal year. Additionally, the subsidy for fertilizers is anticipated to escalate to between Rs 2.05 lakh crore and Rs 2.25 lakh crore.
According to Icra, disruptions in the Strait of Hormuz, a critical route for about 20% of global oil and LNG trade, have restricted the availability of fuels, fertilizers, and chemicals, thereby driving up prices and intensifying cost pressures across various downstream sectors.
Prior to the West Asia crisis, crude oil prices hovered around USD 70-72 per barrel.
Prashant Vasisht, Senior Vice President and Co-Group Head at Icra, noted that the stability of pump prices for automotive fuels, despite high crude oil prices, is adversely affecting the profitability of oil marketing companies (OMCs).
With crude oil prices reaching USD 120-125 per barrel, the marketing margins for petrol and diesel are projected to be negative, at Rs 14 and Rs 18 per litre, respectively.
Icra forecasts that LPG under-recoveries could hit Rs 80,000 crore by FY2027 if the current trends continue, while the fertilizer subsidy burden is expected to surpass the budgeted Rs 1.71 lakh crore.
The rising costs of raw materials and energy are likely to impact profitability across the oil marketing, fertilizers, chemicals, and city gas distribution sectors, with limited capacity to transfer these increased costs to consumers.
Vasisht added that while Icra maintains a stable outlook for the crude oil refining sector, the outlook for fuel retailing, fertilizers, basic chemicals, and petrochemicals remains negative.
The pressure on margins and credit profiles is expected to continue in the short term, with any potential relief dependent on the easing of geopolitical tensions and the normalization of global supply chains.
The fertilizer industry is also grappling with significant cost increases due to rising prices of sulphur and ammonia, as well as elevated natural gas costs. Urea pool prices have surged to approximately USD 19 per million British thermal units in April 2026, up from USD 13 prior to the crisis.
Vasisht remarked that the combination of substantial raw material price inflation and insufficient subsidy adjustments is likely to diminish the profitability of P&K fertilizer companies, with weather risks further complicating farmers' ability to manage price hikes.
Amid disrupted trade flows and increased fuel costs, prices for chemicals and polymers have risen sharply, leading to stockpiling by both manufacturers and consumers. However, Icra anticipates that demand will stabilize once the inventory buildup decreases, particularly in sectors facing global oversupply.
City gas distributors are experiencing margin pressures due to rising gas prices and currency depreciation. While profitability in piped natural gas (PNG) for households remains relatively stable due to priority gas allocation, margins for compressed natural gas (CNG) are expected to decline as cost increases are only partially passed on.
Icra concluded that elevated energy and input costs are likely to compress margins across various sectors, potentially leading to weaker credit profiles in some instances.