How much are oil companies losing on petrol, diesel sales?
What's the story
Oil marketing companies in India are incurring significant losses on the sale of petrol and diesel. The losses stand at ₹14 per liter for petrol and ₹18 per liter for diesel. This is mainly due to high crude oil prices that are outpacing the government-imposed retail fuel rates, thereby squeezing marketing margins.
Sectoral impact
LPG and fertilizer subsidy burdens to rise sharply
The financial strain isn't limited to petrol and diesel. The cooking gas (LPG) sector is expected to suffer an under-recovery of ₹80,000 crore in the current fiscal year due to high energy prices during the West Asia crisis. Meanwhile, the fertilizer subsidy burden is projected to rise significantly, from a budgeted ₹1.71 lakh crore to between ₹2.05 lakh crore and ₹2.25 lakh crore.
Market challenges
Supply disruptions and cost pressures
Supply disruptions in the Strait of Hormuz, which handles nearly 20% of the world's oil and LNG trade, have tightened fuel availability. This has pushed up prices and increased cost pressures across downstream industries. Prashant Vasisht from ICRA said stable pump prices for auto fuels amid high crude oil prices are hurting OMCs' profitability.
Profitability concerns
Impact on profitability across sectors
The rising raw material and energy costs are tipped to impact profitability across oil marketing, fertilizers, chemicals, as well as city gas distribution sectors. These industries have limited ability to fully pass on higher costs to end consumers. ICRA's outlook on the crude oil refining segment remains stable but the outlook on fuel retailing, fertilizer production as well as basic chemicals and petrochemicals is negative.