Oil OMC losses: ₹30,000 crore hit, prices frozen

What happened and why it matters

India’s three state-run oil marketing companies (OMCs) have taken an estimated ₹30,000 crore hit since mid-March after holding retail fuel and LPG prices steady despite a sharp global energy disruption. Indian Oil Corporation (IOC), Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) continued supplying petrol, diesel, LPG, aviation turbine fuel and other petroleum products without retail price hikes, even as input costs rose more than 50%. The decision helped prevent shortages and insulated households and businesses from a sudden jump in pump prices. But it also widened the gap between cost and realised retail prices, creating large under-recoveries that directly pressure OMC balance sheets.

West Asia conflict and the Strait of Hormuz shock

The disruption intensified after conflict in West Asia affected traffic through the Strait of Hormuz, a key route for a majority of India’s energy imports. Sources cited panic buying that pushed up demand and stretched supply networks close to their operational limits. Despite these pressures, the report said there was no “dry out” and retail prices were not increased. The OMCs also faced added costs from emergency crude sourcing, higher freight due to vessel diversions, elevated marine insurance premiums, and refinery optimisation expenses.

Under-recoveries since mid-March

Two sources with direct knowledge of the matter estimated the combined under-recoveries at around ₹30,000 crore since mid-March. Under-recoveries refer to the difference between input costs and the retail prices OMCs realise. The report also described this as a monthly burden in some versions, suggesting losses of about ₹30,000 crore every month during the peak stress period. During April, daily under-recoveries were estimated at about ₹18 per litre on petrol and ₹25 per litre on diesel, translating into average losses of ₹600-700 crore a day, according to one set of estimates. Another estimate in the report put the daily loss range higher at ₹700-1,000 crore.

Government intervention through excise duty cuts

The losses would have increased sharply without government support. Sources said under-recoveries could have swelled to nearly ₹62,500 crore had the government not cut excise duty on petrol and diesel by ₹10 per litre each. The intervention included excise duty reductions and absorption of part of the fuel cost burden. At peak crude prices, the Centre’s effective absorption was estimated at around ₹24 per litre for petrol and ₹30 per litre for diesel.

The report also detailed changes in the duty structure: the special additional excise duty on petrol was cut to ₹3 per litre from ₹13, while excise duty on diesel was reduced to zero from ₹10 per litre. In a separate line, a government official cited in the report said the government took a hit of about ₹14,000 crore a month due to the excise duty cut.

Crude price swing that triggered the stress

Global crude prices rose sharply during the escalation. Brent crude was around USD 72 per barrel before the United States and Israel launched strikes on Iran on February 28, according to the report. Prices surged as the conflict widened and shipping risks intensified around the Strait of Hormuz. At the peak, Brent briefly jumped near USD 144 per barrel after Iran retaliated and closed the Strait, which the report said froze parts of global oil transit and amplified volatility.

Retail prices stayed unchanged in India

Retail fuel prices in India were reported to have remained unchanged since February 28 despite the rise in global crude prices. Petrol was stated at ₹94.77 per litre and diesel at ₹87.67, with no rationing, mobility restrictions, or supply disruptions. The report contrasted India’s stance with other countries where fuel prices reportedly rose sharply and some governments introduced rationing, conservation advisories, emergency relief packages, or fuel caps.

What this means for OMC finances and operations

Sources said the choice to shield consumers placed significant strain on OMC balance sheets and refining margins. High under-recoveries can increase working capital needs because OMCs must fund day-to-day purchases and logistics while selling below cost. The report warned that if elevated crude prices persist, the companies may need higher working capital borrowings and could be forced to recalibrate capital expenditure plans.

Key numbers at a glance

Why India’s approach stood out

The report framed the response as a policy choice aimed at consumer stability and economic continuity during a global energy shock. By not passing the full price spike to consumers, India avoided immediate inflationary pressure from fuel, a key input across transport and logistics. At the same time, the burden shifted to state-run firms and the government’s tax collections via duty cuts and cost absorption. The next steps, as highlighted by sources, depend largely on how long crude prices stay elevated and whether OMCs can sustain losses without adjusting retail prices.