Why fuel prices in India are unlikely to drop soon
What's the story
State-run oil marketing companies (OMCs) are not expected to reduce retail fuel prices anytime soon. The decision comes despite a sharp fall in crude oil prices, as refiners aim to recover heavy losses incurred during the West Asia conflict. An analyst told Moneycontrol that "OMCs are unlikely to revise prices immediately," adding they will wait and watch how the peace deal plays out.
Financial impact
Under-recoveries by OMCs have been significant
The analyst further emphasized that the under-recoveries by OMCs have been significant, amounting to ₹1,000 crore per day before declining to ₹500-600 crore per day. These losses are so high that the government may give some time for OMCs to recover. In May, OMCs suffered cumulative losses of up to ₹1,000 crore a day on petrol, diesel, and LPG sales after the government raised petrol and diesel prices by nearly ₹7.5/litre.
Market fluctuations
Uncertainties surrounding peace deal could drive energy market volatility
Sehul Bhatt, Crisil Intelligence on crude oil, said if the Indian crude basket stays below $90/barrel, under-recoveries are unlikely to increase materially from current levels. However, uncertainties surrounding the peace deal's implementation could continue to drive volatility in energy markets. The West Asia conflict has also sharply increased international LPG prices, with the Saudi Aramco Contract Price, the benchmark for LPG imports into India, rising 46% between February and June 2026 due to supply disruption risks and higher freight costs.
Consumer burden
LPG under-recoveries totaled nearly ₹22,000 crore
In Delhi, under-recoveries increased to ₹651 per domestic cylinder in May 2026. While commercial LPG prices adjusted rapidly to market conditions, the pass-through to household consumers was limited. A part of the increase in procurement cost was absorbed by oil marketing companies, resulting in LPG under-recoveries totaling nearly ₹22,000 crore during March-May 2026.
Supply concerns
Countries will stock up crude oil supplies to mitigate risks
The West Asia war has caused a major disruption, wiping out as much as 10-11 million barrels per day from the global oil market. The countries will now stock up on crude oil supplies to mitigate risks from further hostilities or geopolitical shocks. This could lead to further rises in crude oil prices as inventories continue to shrink globally, making it unlikely for OMCs to cut retail fuel prices anytime soon.