OMCs Lost Rs 18.9/Litre on Diesel, Rs 6 on Petrol in Q1: Report

India's state-owned Oil Marketing Companies (OMCs) suffered significant losses during the April-June quarter (Q1), with an estimated ₹18.9 loss per litre on diesel and ₹6 loss per litre on petrol, according to a report by ICICI Securities. The losses were primarily driven by rising international fuel prices while domestic retail fuel prices remained largely unchanged.

The development marks a sharp reversal from the healthy marketing margins enjoyed by OMCs over the past two financial years and highlights the complex pricing mechanism behind petrol and diesel in India.

OMCs Report Sharp Decline in Fuel Marketing Margins

According to ICICI Securities, state-run oil companies witnessed negative marketing margins despite selling fuel at stable retail prices across the country.

During the same quarter last year, OMCs earned an estimated ₹10.3 per litre on petrol and ₹8.2 per litre on diesel. However, rising international crude oil and refined fuel prices during the latest quarter were not fully reflected in domestic pump prices, resulting in substantial losses.

The report indicates that the gap between global fuel costs and unchanged retail prices significantly impacted the profitability of government-owned fuel retailers.

How Petrol and Diesel Prices Are Determined in India

The price of petrol and diesel sold at fuel stations is calculated using several components rather than crude oil prices alone.

These include:

• International prices of refined petroleum products
• Cost of crude oil
• Freight and transportation charges
• Marketing and distribution expenses
• Dealer commissions
• Central and state taxes
• Exchange rate fluctuations

When international fuel prices increase but domestic pump prices remain unchanged, oil companies absorb the difference, leading to reduced or negative marketing margins. Conversely, when global fuel prices decline and retail prices stay stable, OMCs generate higher profits.

Why Oil Companies Faced Heavy Losses in Q1

ICICI Securities attributed the latest losses to the mismatch between rising international refined fuel prices and relatively stable domestic fuel prices during the April-June period.

Recently, Petroleum and Natural Gas Minister Hardeep Singh Puri stated that state-run OMCs incurred losses of nearly ₹75,000 crore during the quarter by selling petrol, diesel, liquefied petroleum gas (LPG), and aviation turbine fuel (ATF) below market-linked prices.

The losses represent a significant shift from previous quarters when fuel marketing margins remained positive due to favorable international pricing trends.

Crude Oil Prices Alone Do Not Decide Fuel Prices

Industry experts emphasize that a fall in global crude oil prices does not automatically result in lower petrol and diesel prices in India.

Oil companies primarily benchmark domestic fuel prices against international prices of refined petroleum products traded in markets such as Singapore and Dubai. In addition, several other factors influence retail pricing, including:

• Import and freight costs
• Insurance expenses
• Currency exchange rates
• Inventory costs
• Government tax policies

Officials also note that fuel being sold today is refined from crude oil purchased several weeks earlier. As a result, current retail pricing often reflects historical procurement costs rather than prevailing international crude prices.

Analysts Differ on Current OMC Margins

While ICICI Securities reported significant losses during the April-June quarter, some market analysts believe the situation has improved in recent weeks as Brent crude oil prices have moderated to around $72-73 per barrel.

The differing estimates are largely due to varying assumptions regarding inventory valuation, refined fuel prices, and the timing of crude oil purchases.

Despite these differences, analysts agree that the profitability of Oil Marketing Companies depends on multiple variables beyond crude oil prices, including global fuel markets, exchange rates, taxation policies, and government decisions regarding retail fuel prices.

Outlook for Fuel Prices and OMC Profitability

With global energy markets remaining volatile, the financial performance of India's Oil Marketing Companies is expected to depend on future movements in international crude and refined fuel prices, inventory costs, and domestic pricing decisions. Any significant revision in retail fuel prices or changes in global energy markets could influence OMC margins in the coming quarters.

Agency Inputs