Brent At $95 And Rising: How Long Can OMCs Hold Fuel Prices?

State-run oil marketing companies (OMCs) can broadly absorb crude oil prices in the $85-$90 a barrel range, operating close to break-even at these levels, limiting the immediate risk of higher petrol and diesel prices, Moneycontrol reported citing sources.

However, a sustained rise in crude prices above $95-$100 a barrel could force the government and OMCs to reconsider retail fuel prices, the sources said.

“There is less likelihood of an increase in retail prices of petrol and diesel right now. If crude oil prices sustain above $100 a barrel for many weeks, such a situation may arise,” one of the sources said.

Brent Crude Nears $95

Brent crude was trading around $95 a barrel on the afternoon of September 2, having gained more than $4 over the previous two days as the US and Iran stepped up military strikes.

India’s crude basket had averaged $90.19 a barrel in August, according to data from the Petroleum Planning and Analysis Cell (PPAC).

OMCs had raised petrol and diesel prices by around ₹7.5 a litre in May, their first increase in four years, when the Indian crude basket had reached $106.23 a barrel amid the Iran war.

“With crude at around $85-90, even after accounting for all the price increases and excise duty cuts, OMCs are broadly at break-even on auto fuels,” an industry source said.

Diesel Margins Remain Under Pressure

According to ICRA estimates, OMCs currently have a marketing margin of around ₹5 a litre on petrol, while their marketing margin on diesel is negative at about ₹15 a litre.

Prashant Vasisht, senior vice president and co-group head at ICRA, said OMCs should broadly break even on diesel produced at their own refineries when crude prices remain in the $85-$90 range. However, they could incur losses on diesel purchased from standalone refineries.

If crude prices remain elevated for an extended period, OMC losses could widen significantly, eventually increasing pressure to raise retail fuel prices.

Vasisht said OMC daily losses had at one point reached around ₹1,000 crore, before declining to roughly ₹500 crore.

LPG Under-Recoveries Add To Pressure

The fuel companies are also facing losses on subsidised domestic LPG sales.

OMCs currently incur an under-recovery of around ₹200 per LPG cylinder, Vasisht said. The cumulative under-recovery on domestic LPG sales had crossed ₹59,000 crore as of July 31, despite government compensation of ₹52,000 crore disbursed until FY27.

Minister of State for Petroleum and Natural Gas Suresh Gopi disclosed the figures in the Rajya Sabha on August 10.

Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation have been selling cooking gas below market prices, resulting in substantial under-recoveries as international LPG prices rose following the West Asia conflict and the closure of the Strait of Hormuz, Moneycontrol reported.

For now, with crude around the $95 mark and OMCs still broadly able to manage auto-fuel costs, an immediate petrol or diesel price hike appears unlikely. The bigger risk would emerge if crude stays above $100 for several weeks and starts materially widening the companies’ losses.