No relief for oil firms as govt reportedly declines compensation plan

The Centre has no immediate plan to compensate state-run oil marketing companies (OMCs) for losses incurred on the sale of petrol, diesel and jet fuel below market-linked prices, even as pressure builds for a retail price hike amid elevated global crude rates.

A senior Petroleum Ministry official informed The Indian Express that there is currently no proposal before the government to provide financial support to OMCs, which continue to bear the burden of selling key fuels at suppressed prices despite a sharp rise in international energy costs.

Losses mount as prices remain frozen

Retail prices of petrol and diesel have remained largely unchanged for over four years, even as global crude prices surged due to the ongoing West Asia crisis and disruptions in the Strait of Hormuz.

As a result, public sector OMCs — Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation — are incurring heavy losses on fuel sales and have been pushing for a price revision, according to officials familiar with the matter.

The companies are estimated to be losing around Rs 20 per litre on petrol and nearly Rs 100 per litre on diesel, while also incurring significant under-recoveries on domestic LPG sales.

Despite these pressures, the government has kept retail prices steady to cushion consumers from inflationary shocks, particularly during a period marked by state elections.

Limited pass-through in aviation fuel

In the case of aviation turbine fuel (ATF), only a partial pass-through of global price increases has been implemented for domestic flights, while international operations have seen a full adjustment in line with market trends.

This has further added to the financial strain on OMCs, which are balancing political considerations with commercial viability.

LPG losses persist, subsidy option open

OMCs are also facing substantial under-recoveries on domestic LPG cylinders, even as prices of commercial and industrial LPG have been raised.

Unlike petrol and diesel, the government has previously provided subsidy support to offset LPG losses, and officials indicated that such assistance cannot be ruled out again.

Price hike seen as ‘inevitable’

With state elections now concluded, officials signalled that a price revision for petrol, diesel and domestic LPG may be imminent.

“It is inevitable. It is only a matter of time before prices are hiked,” a senior government official said, noting that earlier assurances of price stability were influenced by political considerations during the election period.

Brokerage estimates have suggested a potential increase of Rs 25–28 per litre in petrol and diesel to align domestic prices with global benchmarks, though the government has not confirmed any timeline.

Global factors driving pressure

Global oil prices have remained highly volatile since the escalation of conflict in West Asia, with crude averaging significantly higher than last year.

The disruption of shipping through the Strait of Hormuz — a critical artery for global energy supplies — has further tightened markets and pushed up prices.

India, which relies heavily on imported crude, has so far maintained adequate supply levels but continues to face cost pressures linked to international benchmarks.

Policy dilemma ahead

While petrol and diesel prices are officially deregulated, state-run OMCs — which control around 90 per cent of the retail market — have effectively held prices steady in coordination with the government.

This has created a policy dilemma: raising prices risks fuelling inflation, while maintaining current levels continues to strain the finances of fuel retailers.

With no immediate fiscal support forthcoming, the burden remains on OMCs — at least until a decision is taken on revising retail fuel prices.