India’s state-run oil marketing companies (OMCs) are finding no refuge in the first retail fuel price hike since 2022. Despite raising petrol and diesel prices by up to Rs 3 per litre on Friday, shares of HPCL and BPCL tumbled 3% as investors realised the adjustment won’t be enough to handle the ocean of mounting losses. With Brent crude hovering well above the $100 mark and the West Asia crisis showing no signs of cooling, the market is bracing for a quarter of potentially catastrophic financial bleeding.
"The modest hike in retail price of Rs 3/litre for petrol and diesel provides limited relief to the oil marketing companies," said Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings at ICRA. "ICRA estimates that at a crude price of $105-110 per barrel, oil marketing companies incur a loss of about Rs 500 crore daily on the sale of auto fuels and domestic LPG, even after factoring the fuel price hike."
Friday's hike, which brings petrol in Delhi to Rs 97.77 per litre and diesel to Rs 90.67, barely dents that shortfall.
Emkay Global's Seshadri Sen had the math before Friday's announcement. Under-recoveries, he estimated, stood at roughly Rs 17-18 per litre at current crude levels even after the government's excise cuts of Rs 10 per litre effected on March 27. That translates to quarterly OMC losses of Rs 57,000-58,000 crore.
“We expect hikes of Rs 10/lt to cover approximately 50% of under-recoveries, either in one shot or via creeping hikes over 2-3 weeks,” Sen wrote, adding that even that would "deliver an inflation and consumption shock, with a more pronounced impact on mass segments."
Rs 3 hike covers less than a fifth of what Sen's firm considered the minimum necessary relief.
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Dipan Mehta, Director at Elixir Equities, told ET Markets that OMC stocks fell today because the hike was lower than expected and there is no clarity as to whether the government will increase rates further. “The market is also staring at the worst-case scenario of these fuel retailers reporting huge losses in the June quarter.” According to one study he cited, OMCs need a 17-18% price hike to return to pre-war profitability levels.
The crude reality behind the crisis
Brent crude surged from nearly $69 a barrel in February to above $120 at its peak, and currently trades around $107, driven by the US-Israel-Iran conflict that erupted on February 28. Concerns over instability in the Strait of Hormuz, a chokepoint for a significant share of global oil shipments, and uncertainty around a durable ceasefire have kept prices elevated and volatile.
“With global crude oil prices surging from nearly $69 in February to above $120+ per barrel and currently at the $107 mark, oil marketing companies were under mounting pressure due to rising input costs and shrinking marketing margins,” said Ajit Mishra, SVP Research at Religare Broking. "Higher transportation and logistics costs could gradually push up prices of essential goods and services, increasing the burden on household budgets."
OMCs had been absorbing a large part of the price increase themselves to avoid a sharper burden on consumers and the broader economy, but the strategy has been quietly devastating their balance sheets.
Inflation risk
The government faces a dilemma with no clean exit. Further price hikes, which analysts say are necessary, risk stoking inflation at a moment when the Reserve Bank of India is already watching carefully.
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Yes Bank Chief Economist Indranil Pan said a 10% increase in petrol and diesel prices would raise headline CPI directly by 48 basis points, with second-round effects of around 25 basis points more. Even a 5% increase would push headline CPI up by 35-40 basis points.
"Overall, there exists a risk for our inflation expectation of 5.1% for Q3FY27 to be breached to the higher side," Pan said, noting that RBI Governor Malhotra had recently alluded to the possibility of pump-price increases if the West Asia crisis prolongs and that fiscal coordination would be needed, implying the price burden would have to be shared rather than passed through entirely to end users.
Emkay's Sen warned that if crude stays above $100 per barrel for two to three quarters, retail prices could rise by Rs 18-20 per litre over 3-6 months, though he called that an extended Gulf impasse a low-probability base case.
For investors, the core question is whether Friday's move is a one-off gesture or the beginning of a meaningful correction. The market's 3% sell-off suggests deep scepticism about the former.
Mehta argued the government should move faster while political conditions allow. "The government must bite the bullet and take petrol, diesel prices even higher. Right now, there are no elections, and so tough steps can be taken at this time," he said. "There is a need to protect OMCs from such sharp hikes in crude oil prices. This will increase investor confidence in these companies so that they can pursue India's most important objective of energy security."
ICRA's Vasisht echoed that conditional outlook. "The oil marketing companies would need to relook at the retail prices in case elevated crude oil prices persist," he said.
