Oil retailers losing Rs 21 per litre on petrol and Rs 28 on diesel: Jefferies

India's state-run oil marketing companies (OMCs) are haemorrhaging cash on fuel sales even after the government slashed excise duties last month, with losses ballooning to Rs 21 per litre on petrol and Rs 28 on diesel, according to Jefferies.

The mounting losses come despite the government’s intervention on March 27 to cut excise duty by Rs 10 per litre on both fuels, a move that has proven insufficient as global refining margins surge to unprecedented levels amid Middle East supply disruptions. Retail fuel prices have remained frozen throughout this period.

"OMCs are making a loss of Rs 21/lt on petrol currently and Rs 28/lt on diesel based on 15-day average pricing," Jefferies said, noting this represents a dramatic reversal from profits of Rs 9 and Rs 2 per litre on petrol and diesel respectively, at end-February.


The crisis in refining economics stems from approximately 3% of global refining capacity, which is around 3.4 million barrels per day, sustaining damage since the Middle East conflict erupted, compounded by Russian infrastructure destruction. Singapore gross refining margins, a key Asian benchmark, have exploded above $50 per barrel versus just $4.6 per barrel in late February.

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"Gasoline/diesel/aviation fuel cracks are currently up 6x/4x/6x since the start of the Middle East conflict," the brokerage noted, with massive petrochemical capacity damage providing additional support to spreads.

The reopening of the Strait of Hormuz following the ceasefire agreement offers a glimmer of hope, though analysts warn freight costs may remain elevated. Kpler data shows 172 million barrels of crude and products loaded on 187 tankers remain stuck in the strait, with movement having dropped to single digits in recent days before Iran agreed to reopen the waterway.

Goldman Sachs has trimmed its second-quarter Brent crude forecast to $90 per barrel from $99 previously, citing reduced risk premium and improving flows through the strait. Brent prices have fallen over 11% this week on ceasefire optimism, though concerns persist about the agreement's durability.

Market distortions run deep, with Russian Urals and Dubai crude trading at premiums to Brent, an unusual inversion of typical pricing patterns. Liquefied natural gas (LNG) prices have surged 85%, with supply damage expected to keep gas markets tight through 2026-27, Jefferies added.

ICICI Securities analyst Probal Sen sees a silver lining if crude stabilises near $90-95 per barrel. "A sharp correction in crude prices reduces net realisations for upstream companies," Sen noted, but stabilisation at these levels would still keep realisations "well above long-term averages" while reducing the probability of government-imposed caps.

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For refiners, normalisation could bring dual benefits: improved retail margins from lower crude and better availability of preferred crude grades, boosting distillate yields. "LPG losses could reduce by ~30% (estimated at Rs 11,000 crore in Q4)" as macro conditions ease shortages, Sen said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)