OMC losses 2026: Q1 hit may erase PSU FY profit in India

Why India’s fuel retailers are under pressure

India’s three state-run fuel retailers are facing first-quarter losses that could wipe out profitability for the full financial year, as crude prices rise and pump prices remain frozen, according to a senior government source. The impact is concentrated at the oil marketing companies (OMCs) that sell petrol, diesel and domestic LPG to consumers. These companies have continued to supply fuels without interruption, even as global energy markets have seen sharper price pass-through and, in some cases, rationing.

The key issue is marketing margin compression. OMCs are buying crude oil and finished products at higher international prices, but retail prices for petrol and diesel have remained at levels set about two years ago. As the gap between cost and retail selling price widens, under-recoveries have risen to what sources describe as record levels.

The conflict-driven crude spike and the price freeze

The stress has built up over roughly 10 weeks after the Middle East and West Asia conflict intensified, as per multiple reports cited in the provided material. During this period, input crude oil prices surged about 50%. Despite that, retail prices for the two main auto fuels have remained unchanged: petrol at ₹94.77 per litre and diesel at ₹87.67 per litre.

Domestic LPG prices were raised by ₹60 per cylinder in March, but sources said the selling price is still below the actual cost. The result is that the OMCs have been absorbing losses across petrol, diesel and LPG rather than passing them on to consumers.

Under-recoveries at record levels

A senior government source put the combined under-recovery on petrol, diesel and LPG at about ₹1,000 crore to ₹1,200 crore per day. Separately, PTI-based reports in the provided text cite a higher daily run-rate of about ₹1,600 crore to ₹1,700 crore.

Even at the lower end of the reported range, the arithmetic becomes material quickly. The same source said that at current oil prices, losses in the April to June quarter could wipe out the full-year profit of about ₹76,000 crore. After including losses in March, cumulative losses were described as about ₹1,00,000 crore.

Per-unit losses show how quickly the gap is widening

Sources also broke down losses on a per-unit basis. Current losses were stated as ₹14 per litre on petrol, ₹42 per litre on diesel, and ₹674 per cylinder on domestic LPG. These per-unit gaps indicate that diesel and LPG are the largest pressure points for marketing margins.

The OMCs’ financial strain is also linked to working capital needs. The government source said the companies may have to borrow more to fund crude purchases if elevated prices persist.

What ICRA said about sustainability

Rating agency ICRA, through Prashant Vashisht (Senior Vice President and Co-Group Head, Corporate Ratings), said OMCs are incurring substantial losses on auto fuels and domestic LPG due to high international crude and product prices. ICRA estimated that at crude prices of USD 120 to 125 per barrel, and using the past 10-year average crack spreads for auto fuels, OMCs incur losses of around ₹1,000 crore per day on auto fuels and domestic LPG.

ICRA’s assessment also included a clear warning on duration. The agency said this level of losses is unsustainable and would need to be addressed if elevated crude and product prices persist over an extended period.

Global comparison and India’s import disruption

The reports cited that several countries, including Japan and the United Kingdom, raised petrol and diesel prices by up to 30% since the start of the conflict. India, however, has held prices steady at the two-year-old levels.

The disruption is significant for India because the conflict affected imports of key energy inputs cited in the text: about 40% of crude oil, 90% of cooking gas LPG, and 65% of natural gas. Natural gas is used across power generation, fertiliser production, conversion into CNG, and piped gas supplies to households.

Government actions on excise and the fiscal trade-off

The government also reduced fuel taxes, sharing part of the burden through lower excise collections. As per the provided material, the special additional excise duty on petrol was cut to ₹3 per litre from ₹13, and excise duty on diesel was reduced to zero from ₹10 per litre.

One source quantified the fiscal impact as a hit of about ₹14,000 crore a month due to excise duty reductions. This frames the broader policy challenge: consumer price stability versus stress on PSU balance sheets and public finances.

Key numbers at a glance

Market impact for listed OMCs and the sector

For investors, the immediate market relevance is that under-recoveries directly pressure profitability and cash flows at IOC, BPCL and HPCL. The reported daily loss run-rate implies that even short periods of elevated crude prices can materially alter quarterly outcomes. The need to borrow more for working capital, as suggested by the government source, adds another layer of balance-sheet stress during high-price periods.

The sector-wide impact extends beyond OMCs. Refining and marketing economics are shaped by global crude prices and crack spreads, while domestic pricing policies influence the speed and extent to which costs can be passed through to consumers.

Why this episode matters

The episode highlights how quickly India’s fuel economics can shift when global prices spike but retail prices remain unchanged. It also shows that the burden is not borne by a single entity: OMC balance sheets absorb under-recoveries, while the government absorbs part of the shock through excise cuts.

Separate reports in the provided text also refer to policy discussions on potential fuel price revisions, including references to ongoing engagement between ministries and OMCs, and public remarks from senior officials about the scale of under-recoveries. These elements matter because they frame how losses might be addressed if high crude and product prices persist.

Conclusion

India’s state-run OMCs are absorbing large, clearly quantified under-recoveries as crude prices rise and pump prices stay frozen, putting full-year profitability at risk. The next set of signals to watch, based on the provided reports, are ongoing discussions involving the petroleum and finance ministries and the OMCs on how to address sustained elevated losses.