State-Run Oil Companies Face Significant Losses Amidst Rising Global Oil Prices
Oil Marketing Companies Report Major Losses
During the April to June quarter, state-owned oil marketing companies (OMCs) experienced substantial losses in the retail sale of petrol and diesel. This occurred despite a rise in international oil prices, as domestic fuel prices remained relatively stable. Estimates from ICICI Securities indicate that OMCs suffered losses of approximately Rs 18.9 per litre on diesel and Rs 6 per litre on petrol sold at retail outlets during this period. This represents a stark contrast to the previous year, when these companies enjoyed healthy profit margins.
The losses were attributed to an increase in international crude oil and refined fuel prices, which were not fully reflected in domestic pump prices. Consequently, fuel retailers had to sell petrol and diesel below market-linked prices, leading to negative retail margins. In the same quarter last year, OMCs reported earnings of Rs 8.2 per litre on diesel and Rs 10.3 per litre on petrol. Even in the June quarter of 2024, retail margins were positive, at Rs 2.5 per litre for diesel and Rs 4.4 per litre for petrol.
Government Acknowledges OMCs' Financial Struggles
Petroleum and Natural Gas Minister Hardeep Singh Puri recently addressed the financial challenges faced by state-run fuel retailers, stating that OMCs incurred losses of around Rs 75,000 crore during the quarter ending in June due to selling petrol, diesel, liquefied petroleum gas, and jet fuel below market rates.
The pricing strategy employed by OMCs is based on refinery gate prices linked to international fuel prices. To establish the final retail price, companies factor in freight charges, marketing and distribution costs, dealer commissions, and retail margins. However, when international fuel prices rise while domestic prices remain unchanged, the potential for earning retail margins diminishes significantly, often leading to losses. Conversely, when global prices decline and domestic fuel prices stay the same, companies can maintain larger margins.
Shift in Retail Pricing Strategy Post-Ukraine Conflict
This situation reflects a significant shift in India's fuel pricing strategy since the onset of the Ukraine war in early 2022. The surge in global crude oil prices prompted OMCs to reduce regular adjustments in retail fuel prices based on international market fluctuations. Since then, petrol and diesel prices have only seen limited changes. While this approach has allowed retailers to achieve higher margins during periods of lower global oil prices, it has also left them vulnerable to considerable losses when international fuel prices rise sharply.
According to ICICI Securities, retail margins have varied significantly over recent quarters. Petrol margins peaked at Rs 12 per litre during the third quarter of 2024-25, while diesel margins reached Rs 8.2 per litre in the first quarter of 2025-26. However, the latest quarter has seen a dramatic shift into negative margins, highlighting the financial strain on state-run fuel retailers amid high global energy prices.