Top OMCs post losses with government weighing relief measures

State-run oil marketing companies (OMCs) Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL) reported steep losses for the April-June quarter, reflecting the impact of selling petrol, diesel and LPG below market rates as crude prices remained elevated amid the West Asia conflict.

HPCL on Wednesday reported a standalone net loss of Rs 11,526.41 crore for the first quarter, while BPCL posted a standalone loss of Rs 3,962 crore during the same period.

The earnings come after Petroleum and Natural Gas Minister Hardeep Singh Puri earlier this month said the three state-run OMCs, Indian Oil Corp (IOC), BPCL and HPCL, together incurred losses of Rs 74,781 crore during the April-June quarter.


The losses have prompted the oil ministry to work on a proposal to compensate the companies after they sought relief for the mounting under-recoveries, ET reported citing people familiar with the matter.

The OMCs have largely sold petrol, diesel and LPG below market rates since February 28, when the US-Iran conflict broke out. Although a temporary truce had briefly pulled Brent crude prices lower, hopes of recovering the losses faded as crude prices climbed again amid renewed tensions in West Asia.

Earlier this month, brokerage Nomura had warned that the West Asia crisis and the spike in oil prices were likely to leave their deepest impact on India's OMCs during the June quarter, with HPCL expected to be the worst hit because of its relatively higher exposure to fuel marketing.

The brokerage had estimated HPCL was losing $19 per barrel on an integrated basis, compared with $8 per barrel for BPCL and $4 per barrel for IOC. Before the latest oil price shock, all three companies had been generating integrated margins of $12-14 per barrel, it had said.

Nomura had also compared the current situation with 2022, when fuel prices remained unchanged for weeks after Russia invaded Ukraine despite a sharp rise in crude oil prices. It had said the recent Rs 3 per litre fuel price increase could be the first in a series of hikes if crude prices remained elevated, helping restore OMC marketing margins.

At the peak of the conflict that began in February, crude oil had surged to $126 per barrel. Higher crude prices typically squeeze downstream OMCs as they buy crude at elevated rates but are unable to fully pass on the increase to consumers, resulting in pressure on marketing margins.

According to an Economic Times report, people aware of the discussions said the oil ministry's compensation proposal will require approval from the finance ministry before being placed before the Union Cabinet and could involve weeks or months of inter-ministerial consultations.

The government has historically compensated OMCs for losses on domestic LPG, a regulated fuel, but has been reluctant to reimburse losses on petrol and diesel because both fuels are officially deregulated. Compensating such losses could weaken the deregulation framework and trigger similar claims from private fuel retailers.

In recent years, the Centre provided Rs 22,000 crore in 2022 and Rs 30,000 crore last year to compensate OMCs for selling LPG below cost. In the Union Budget for February 2023, it had instead proposed a Rs 30,000 crore equity infusion into the three companies after they sought compensation for petrol and diesel losses. The proposal was later dropped after crude prices eased and the companies recovered much of their losses.

With crude prices remaining elevated and geopolitical tensions showing little sign of easing, the outlook for downstream OMCs will continue to depend on the trajectory of global oil prices. While stronger refining margins and recent fuel price hikes could provide some relief, the pace of recovery will hinge on whether crude prices moderate in the coming months.