India’s state-run oil marketing companies (OMCs) could face more than ₹64,000 crore in under-recoveries on petrol and diesel during FY2026–27 if crude oil prices remain between $105 and $115 per barrel in the second half of the financial year and domestic retail prices are not increased. The estimate from rating agency ICRA highlights the financial pressure created when international oil costs rise faster than the prices charged to Indian consumers.
The warning comes amid elevated crude prices and supply concerns linked to the continuing conflict in West Asia. Moneycontrol reported on October 28, 2026, that Brent crude had traded around $115.8 per barrel following renewed concerns about attacks on energy infrastructure. If prices remain elevated, Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) could face further pressure on marketing margins, cash flows and working capital.
Key Takeaways
- ₹64,000 crore risk: ICRA estimates that petrol and diesel under-recoveries could exceed ₹64,000 crore in FY27 if Brent crude averages $105–$115 per barrel in the second half and retail prices remain unchanged.
- Higher crude, higher costs: Expensive imported oil increases the cost of supplying domestic fuel.
- Potential price increases: ICRA’s modelling suggests that a ₹4-per-litre increase in petrol and diesel prices would sharply reduce projected under-recoveries under the $105–$115 scenario.
- More severe scenario: If crude averages $130–$140 per barrel, projected under-recoveries could reach approximately ₹1.91 lakh crore without retail price increases.
- Consumers and inflation: Higher fuel prices could affect transport costs, household budgets and the wider economy.
- Separate LPG pressure: The petrol and diesel estimate does not include the full burden of losses on domestic LPG sales.
What Are Fuel Under-Recoveries?
Under-recovery occurs when an oil marketing company sells fuel at a price that does not fully cover the relevant cost of supplying it. When international crude oil and refined-product prices rise but domestic petrol and diesel prices remain unchanged, the gap can widen.
India’s fuel retailers purchase crude oil, refine it or buy refined products, transport them and distribute them through retail outlets. Their economics depend on several factors, including international oil prices, refining margins, freight costs, taxes and the price at which fuel is sold to consumers.
Petrol and diesel prices in India are influenced by international market conditions, but domestic retail prices do not necessarily change immediately with every movement in crude. This can temporarily protect consumers from price volatility while transferring part of the cost pressure to fuel retailers.
Under-recoveries are not the same as a company’s reported net loss. An under-recovery measures the gap between selling prices and estimated market-linked costs; a company’s overall financial results also reflect refining earnings, other business activities, expenses and any government support.
Why Could OMCs Face ₹64,000 Crore in Under-Recoveries?
ICRA’s projection assumes that crude oil prices remain elevated in the second half of FY27 and that petrol and diesel retail prices are not raised to compensate.
The estimate reflects the challenge of absorbing high international costs while maintaining relatively stable domestic prices. The three major public-sector fuel retailers—IOC, BPCL and HPCL—operate extensive refining and distribution businesses, but their retail operations can still face losses when the cost of purchased fuel exceeds the revenue collected from customers.
Moneycontrol reported that the Petroleum Ministry had placed cumulative petrol and diesel under-recoveries during the April–June quarter at ₹1.64 lakh crore. This figure includes losses incurred before retail price increases implemented in phases during May and June, so it should not be directly compared with the full-year ICRA projection without accounting for the different periods and assumptions.
In May, petrol and diesel prices were raised by around ₹7.5 per litre after approximately four years without an increase. The subsequent rise in international oil prices has nevertheless renewed pressure on fuel marketing margins.
How Different Crude Prices Could Affect OMCs
ICRA’s estimates show how significantly the financial outcome could change depending on the average crude price and whether retailers increase pump prices.
| Scenario for FY27 | Estimated petrol and diesel under-recoveries |
|---|---|
| Brent averages $105–$115 per barrel, with no retail price increase | More than ₹64,000 crore |
| Brent averages $130–$140 per barrel, with no retail price increase | Approximately ₹1.91 lakh crore |
| $105–$115 crude scenario with a ₹4-per-litre increase in petrol and diesel | Approximately ₹3,600 crore |
| $105–$115 crude scenario with a ₹6-per-litre increase in petrol and diesel | Could result in a marketing gain of approximately ₹37,400 crore |
Source: ICRA estimates reported by Moneycontrol. These are scenario-based projections, not guaranteed financial outcomes.
The figures illustrate how sensitive fuel marketing economics can be to retail pricing. They do not mean that a price increase is certain or that the government has decided to approve one.
Actual outcomes will depend on the duration of elevated oil prices, the cost of refined products, refining margins, freight and insurance expenses, and any policy intervention.
Why Global Oil Prices Are Rising
Geopolitical tensions and disruption risks around major energy infrastructure and shipping routes in West Asia have increased concerns about crude availability and transportation costs.
Brent crude is an international benchmark, while India’s crude basket reflects the oil imported by Indian refiners. The price paid by a particular company can also vary according to the grade of crude, contract terms, freight and insurance costs.
Moneycontrol reported that the Indian crude basket averaged $120.33 per barrel in October up to the time of publication, compared with $116.09 in September. India’s crude import bill rose 46.3% to $90.6 billion in April–September, even though import volumes were broadly flat year over year, according to data from the Petroleum Planning and Analysis Cell (PPAC).
Higher transportation costs add another layer of pressure. HPCL said freight costs for a Suezmax tanker had increased to around $9 per barrel in the second quarter from approximately $4 in the first quarter. Longer shipping routes and higher insurance premiums can make imported oil more expensive even when the headline crude price changes only modestly.
Why Strong Refining Margins May Not Be Enough
OMCs operate both refining businesses and fuel-marketing operations. Higher international product prices can sometimes improve refinery margins, offering a partial cushion against losses at petrol pumps.
However, refining gains do not automatically offset all marketing losses. Companies also buy finished fuel from other refiners, and the economics of those purchases may be less favourable when international prices are high.
ICRA has indicated that the combined refining and marketing businesses generally approach break-even when crude prices are around $85–$90 per barrel, depending on product margins and other factors. When crude stays above $100, marketing losses can become harder to absorb if domestic retail prices do not adjust.
This is why looking at a company’s refining performance alone may not reveal the full financial impact of elevated oil prices.
What Higher Oil Prices Mean for India’s Economy
India imports more than 88% of its oil requirements, making its economy sensitive to sustained increases in international crude prices.
Higher oil prices can increase the country’s import bill and put pressure on the current account deficit (CAD), which measures the gap between a country’s external receipts and payments. They can also contribute to imported inflation, particularly if higher energy costs feed into transportation, logistics, manufacturing and food distribution.
Manoranjan Sharma, chief economist at Informerics Ratings, told Moneycontrol that crude averaging $110–$115 per barrel in FY27 could increase India’s annual net oil imports by $56–$64 billion. He also estimated that every $10 increase in crude prices could widen the current account deficit by 0.3–0.4 percentage points of GDP.
For consumers, the immediate question is whether petrol and diesel prices will rise. Higher pump prices can increase commuting and transport expenses, while stable prices can protect household budgets in the short term. However, keeping prices unchanged for an extended period may intensify financial pressure on retailers and raise questions about how those costs will ultimately be absorbed.
The LPG Problem Is Separate
The ₹64,000-crore projection covers petrol and diesel, not the full financial pressure associated with domestic cooking gas.
ICRA has also warned of substantial under-recoveries on household LPG cylinders because international LPG prices and supply costs have risen faster than domestic selling prices. Its estimates reported in September suggested losses of around ₹300 per domestic cylinder at that time, although the amount can change with international prices and policy support.
LPG matters because its pricing arrangements differ from those for petrol and diesel. The government has previously provided financial support to OMCs to address losses on domestic LPG sales. Whether additional assistance is provided will affect the final financial burden borne by the companies.
The Bigger Picture
The growing pressure on OMCs reflects a difficult policy balance for India. Keeping retail fuel prices stable can limit the immediate impact of global oil shocks on households and businesses, but prolonged high crude prices can weaken the finances of state-run retailers and increase the country’s import bill. The longer the gap between international costs and domestic prices persists, the harder it becomes to avoid trade-offs among consumer protection, company finances and public finances.
For investors, the main indicators to watch are Brent crude, India’s crude basket, retail fuel price revisions, refining margins and any government support. For consumers, a sustained rise in crude prices could eventually increase the risk of higher petrol and diesel prices, although no specific future increase should be assumed from ICRA’s scenario estimates alone.
FAQs
1. What are OMCs in India?
OMCs are oil marketing companies that procure, refine, distribute or sell petroleum products. India’s major state-run OMCs include Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation.
2. What does ₹64,000 crore in under-recoveries mean?
It is ICRA’s estimate of the potential gap between the cost of supplying petrol and diesel and the revenue from retail sales in FY27 under a specified high-crude-price scenario with no retail price increase. It is a projection, not a confirmed final loss.
3. Will petrol and diesel prices increase in India?
The estimate does not confirm an upcoming price increase. If crude remains expensive for an extended period, retailers and policymakers may face greater pressure to reconsider pricing, but any decision will depend on market conditions and government policy.
4. What happens if crude oil reaches $130–$140 per barrel?
ICRA estimates that petrol and diesel under-recoveries could reach around ₹1.91 lakh crore in FY27 if Brent averages that range in the second half and retail prices are not increased.
5. How do higher crude prices affect India’s economy?
Higher crude prices increase the cost of oil imports and can widen the current account deficit. They may also raise inflationary pressure through fuel, freight and transportation costs, affecting households and businesses.
Looking Ahead
The next few months will be important for determining whether the crude-price shock persists and how India’s fuel retailers respond. If oil remains above $100 per barrel, OMCs may face mounting pressure on cash flows, while investors will monitor retail price changes, refining earnings and any additional government support. ICRA’s projections will need to be reassessed as actual prices and operating conditions evolve.
For India, the central challenge is to manage the consequences of expensive imported energy without placing an excessive burden on consumers or fuel retailers. A sustained easing in crude prices would reduce that pressure, but continued disruption in West Asia could make the trade-off more difficult throughout FY27.
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