Even when crude oil prices were high due to the conflict in the Middle East, there was no significant increase in the prices of petrol and diesel in India, causing huge losses to the oil companies. Now, even though crude oil prices have come down and fuel prices that were raised earlier remain the same, oil companies are still incurring huge losses.
According to a report by ICICI Securities, oil companies have suffered huge losses in the April-June quarter. Oil marketing companies (OMCs) have suffered a loss of ₹18.9 per liter on diesel and ₹6 per liter on petrol. According to the brokerage firm, in the same quarter last year, oil and gas companies got a margin of ₹ 8.2 per liter on diesel and ₹ 10.3 per liter on petrol. However, the full impact of the increase in international crude oil and refined fuel prices during the last quarter was not passed on to retail prices, resulting in negative margins for companies.
How are the prices of petrol and diesel decided?
The price customers pay at a petrol pump is a combination of many factors. The prices of petrol and diesel at the refinery gate are mainly determined by the international refined fuel price. Before deciding the pump price, oil companies add transportation and logistics costs, trading and distribution costs, dealer commission and applicable taxes.
What is included in the cost of refined fuel?
This includes costs like refined fuel price, transportation and logistics, distribution costs, dealer commission, taxes and retail margins. Any change in these factors impacts the margins of companies. When international fuel prices rise but petrol pump prices do not change in the same proportion, the retail profit margins of oil companies are reduced. Conversely, if global prices fall and retail prices remain the same, companies earn higher profit margins.
Why are companies incurring losses?
ICICI Securities attributed the recent losses to the imbalance between rising international fuel prices and stable domestic petrol pump prices during the April-June period. Petroleum and Natural Gas Minister Hardeep Singh Puri recently said oil marketing companies (OMCs) suffered a loss of about ₹75,000 crore in the quarter from selling petrol, diesel, LPG and aviation turbine fuel below market rates.
The current loss represents a sharp decline from the strong retail margins seen in the last two financial years. According to ICICI Securities, petrol margins reached an all-time high of ₹12 per liter in Q3FY25, while diesel margins reached as high as ₹8.2 per liter in Q1FY26.