Fuel Price Pressure Mounts as Oil Companies Struggle with Massive Losses Amid Global Crude Volatility

On Monday, fuel prices were raised once again, marking the fourth increase within the last 11 days. Despite these successive hikes, the country’s three state-run oil marketing companies—Indian Oil Corporation, Bharat Petroleum Corporation Limited, and Hindustan Petroleum Corporation Limited—continue to face significant financial losses.

Over the past 11 days, petrol and diesel prices have cumulatively risen by more than ₹7 per litre through multiple phases of revision. The increases were implemented in stages, including a ₹3 rise, followed by 90 paise, then 87 paise, and most recently ₹2.61 per litre. However, financial market estimates suggest that these revisions remain insufficient to offset the accumulated losses of oil marketing companies.

Analysts indicate that, in theory, a price increase of approximately ₹28 to ₹33 per litre would be required to fully bridge the gap between crude procurement and refining costs and retail selling prices, along with clearing past losses. This implies that even after recent revisions, an additional increase of at least ₹20 per litre would still be needed to recover prior financial damage.

However, from both economic and political perspectives, such a steep one-time increase is considered highly unlikely. Experts instead expect a gradual, phased rise in fuel prices over time, as sustained operational pressure continues to weigh on oil marketing companies.

The crisis deepened following the Iran crisis that began on February 28, which triggered a sharp rise in global crude oil prices. During this period, international oil rates surged rapidly, significantly increasing import and refining costs. Despite this, domestic petrol and diesel prices in India were kept stable for 74 consecutive days.

This extended price freeze led to a situation where oil companies were purchasing crude at elevated international rates while continuing to sell fuel at older, lower retail prices, causing mounting financial stress over time. By the time price revisions began after state assembly election results in five states, the combined losses of the three public sector oil companies had exceeded ₹1.2 lakh crore.

India imports nearly 88 percent of its crude oil requirements, making it highly vulnerable to global geopolitical disruptions, which directly impact import costs and fuel economics.

Recent revisions have marginally reduced the daily losses of oil companies, but have not eliminated them. According to industry estimates, every 50 paise increase in fuel marketing margins improves earnings before interest, taxes, and depreciation by approximately 7 to 11 percent, highlighting how even small price changes significantly affect profitability.

At the peak of high crude prices, these companies were collectively losing nearly ₹1,600 crore per day. The government eventually allowed gradual price increases, but domestic fuel price adjustments have lagged significantly behind the pace of international crude price movements.

Temporary Relief from Global Oil Price Decline

A brief relief emerged on Monday as global crude oil prices fell by nearly 5 percent amid expectations of a possible diplomatic agreement between Iran and the United States. Markets anticipate that easing geopolitical tensions could stabilize supply routes and reduce risks in key transit corridors, including the Strait of Hormuz, one of the world’s most critical oil shipping routes.

If crude prices remain subdued, pressure on domestic fuel pricing could ease. However, analysts caution that even in the event of a diplomatic breakthrough, normalization of supply chains and shipping routes will take time. Insurance premiums, freight costs, and geopolitical risk factors are expected to keep crude prices elevated in the near term.

Dual Challenge for Policymakers

The situation has placed policymakers in a difficult position, balancing two opposing priorities. Rising fuel prices directly increase transportation costs, which subsequently drive up prices of food, consumer goods, and services, intensifying inflationary pressure on households.

On the other hand, state-run oil companies cannot indefinitely absorb such losses without impacting their investment plans, balance sheets, and long-term supply stability. While recent price increases have provided limited relief, the overall financial imbalance has not yet been resolved, with the cumulative adjustment of ₹7.38 per litre still insufficient to fully address the underlying deficit.

The fuel pricing outlook remains uncertain, with experts warning that further incremental increases are likely as global crude volatility continues to shape India’s energy economics.