Oil marketing companies (OMCs) continue to reel under significant marketing losses even after the recent fuel price hike, with the situation remaining far from comfortable given elevated crude oil prices, according to an assessment by ICRA.

At crude oil prices in the range of $120–$125 per barrel, levels seen roughly two weeks ago, OMCs were incurring losses of approximately Rs 1,000 crore per day on the sale of petrol, diesel, and domestic LPG.

While a modest decline in crude prices to the $105–$110 per barrel range over the past one to one-and-a-half weeks has offered some relief, ICRA estimates that losses are still running at around Rs 500 crore per day even after the price hike, a level that is clearly not sustainable.

"From the point of view of elevated prices of crude oil, this is a very modest increase in prices," Prashant Vashisht, senior VP at ICRA Ratings, told The Core Report. "At some point, if the geopolitical situation drags on, the OMCs would have to relook at prices."

The government on Friday hiked the retail price of petrol and diesel by Rs 3 per litre. A second hike of 90 paise per litre followed on Tuesday.

Spreads, Losses By The Numbers

As per estimates by ICRA, on a per-unit basis, marketing losses after the hike stand at approximately Rs 7.5 per litre on diesel and Rs 3.2 per litre on petrol. Losses on domestic LPG remain steep at around Rs 400 per cylinder.

Vashisht clarified that these estimates are based on long-term, 10-year average crack spreads, rather than the currently elevated market spreads. Crack spread is the differential between the price of refined products, such as diesel or petrol and crude oil.

Diesel crack spreads in recent weeks have surged to exceptionally high levels, touching $100 per barrel and above, before easing to around $60–$80 per barrel, still well above historical norms.

"It cannot be that oil marketing companies are paying $100 per barrel in crack spreads for diesel and then selling at a huge loss," he noted, adding that a formula for capping crack spreads for standalone refiners is currently under discussion, though not yet finalised.

To put the scale of under-recoveries in context, at crude prices of $120–$125 per barrel and using long-term average crack spreads, marketing losses on diesel were estimated as high as Rs 18 per litre and on petrol around Rs 14 per litre.

Unless crude oil prices correct meaningfully and the ongoing geopolitical tensions ease, OMC financials are likely to remain under severe pressure, ICRA warned.

Freight Costs Add To Landed Price Of Crude

Shipping costs add a further layer of complexity to the landed cost of crude for Indian refiners, with significant variation depending on the source of supply.

Crude sourced from the Middle East, India's traditional supplier base, costs between 40 cents and 70 cents per barrel to freight, with the range reflecting the high volatility in tanker rates.

By contrast, Vashisht said, crude imported from the US Gulf Coast carries a freight cost of $2.50 to $4.50 per barrel, making it roughly $2 to $3.50 per barrel more expensive to land than Middle Eastern crude.

Similar cost differentials apply to supplies from other distant origins, such as South America and North America more broadly.

These freight differentials feed directly into the landed cost of crude at Indian refineries and are a key variable in calculating the true input cost burden on OMCs.

LNG Pricing Is A Different Story

The situation on cooking fuel is equally strained. Domestic LPG, which had briefly approached market-linked pricing just a couple of quarters ago, has swung sharply back into loss-making territory, with under-recoveries now running at approximately Rs 400 per cylinder.

On LNG, the dynamics are somewhat different. The government has put in place pooling mechanisms to supply sectors such as fertilisers at managed prices, but spot LNG, where prices have surged globally, is running around 40% higher, and remains largely unsubsidised, Vashisht noted.

However, LPG availability for the industry has been improving, aided by diversified sourcing from the US, Australia, and Canada.