Oil marketing companies (OMCs) are currently selling petrol and diesel at losses of Rs14 per litre and Rs 18 per litre, respectively, as elevated crude prices continue to outpace capped retail fuel rates, squeezing marketing margins.
In addition to losses on auto fuels, elevated energy prices following the West Asia crisis are expected to result in LPG under-recoveries of about Rs 80,000 crore in the current fiscal. At the same time, the fertiliser subsidy bill is projected to rise to Rs 2.05–2.25 lakh crore, exceeding the budgeted Rs 1.71 lakh crore.
Rating agency Icra said supply disruptions in the Strait of Hormuz—which handles around 20 percent of global oil and LNG trade—have tightened the availability of fuels, fertilisers and chemicals, pushing up prices and increasing cost pressures across downstream industries. Before the crisis broke out two months ago, crude prices were around $70–72 per barrel.
“The stable pump prices for auto fuels amid elevated crude oil prices are impacting the profitability of the oil marketing companies (OMCs),” said Prashant Vasisht, Senior Vice President and Co-Group Head, Icra.
“At crude prices of $120–125 per barrel, marketing margins on petrol and diesel are estimated to be negative Rs 14 per litre and Rs 18 per litre, respectively.”
Icra estimates that LPG under-recoveries could reach Rs 80,000 crore in FY2027 if current trends persist, while the fertiliser subsidy burden is projected to rise to Rs 2.05–2.25 lakh crore.
Elevated raw material and energy costs are expected to weigh on profitability across oil marketing, fertilisers, chemicals and city gas distribution sectors, with limited ability to fully pass on higher costs to end consumers.
“Overall, Icra’s outlook on the crude oil refining segment remains stable, while the outlook on the fuel retailing, fertiliser, basic chemicals and petrochemical sectors remains negative,” Vasisht added.
Icra expects pressure on margins and credit profiles to persist in the near term, with any relief contingent on easing geopolitical tensions and the normalisation of global supply chains.
The fertiliser sector is also facing sharp cost escalation, driven by higher sulphur and ammonia prices and elevated natural gas costs. Urea pool prices have risen to about $19 per million British thermal unit in April 2026, up from $13 before the crisis.
“Significant raw material price inflation coupled with inadequate subsidy revision is set to moderate the profitability of the P&K fertiliser players,” Vasisht said, adding that weather risks could further limit farmers’ ability to absorb price hikes.
Chemical and polymer prices have surged amid disrupted trade flows and higher fuel costs, prompting stockpiling by manufacturers and consumers. However, Icra expects demand to normalise once inventory build-up subsides, particularly in segments exposed to global oversupply.
City gas distributors are also facing margin pressure from rising gas prices and currency depreciation. While profitability in piped natural gas (PNG) for households remains relatively stable due to priority gas allocation, compressed natural gas (CNG) margins are expected to weaken as cost increases are only partially passed on.
Icra said elevated energy and input costs are likely to compress margins across multiple sectors, potentially weakening credit profiles in some cases.
(With inputs from PTI)
