Petrol, diesel prices up by over Rs 7 a litre since May 15; OMCs’ losses down, but still at about Rs 600 crore/day (original) (raw)

After holding retail fuel prices at for over two-and-a-half months amid the surge in global rates due to the West Asia crisis, public sector oil marketing companies (OMCs) have hiked the prices of petrol and diesel by over Rs 7 per litre in less than two weeks. While seemingly steep, the cumulative price increase so far due to the West Asia crisis—done through four hikes—has been lowest among major economies globally and pump prices in India are still among the lowest in the world, except for countries that heavily subsidise fuel prices, according to industry sources.

Prior to these price increases, the OMCs were incurring cumulative daily under-recoveries of about Rs 1,000 crore on petrol, diesel, and liquefied petroleum gas (LPG) sold to households. Although domestic LPG prices have not been hiked since early March, the increase in petrol and diesel prices have reduced the losses to under Rs 600 crore a day now, Petroleum Ministry Joint Secretary Sujata Sharma said Monday. She didn’t comment on how much fuel prices could be hiked going forward.

In the latest revision, the price of petrol was hiked by Rs 2.61 on Monday to Rs 102.12 per litre, while diesel price went up by Rs 2.71 to Rs 95.20 per litre in Delhi, with corresponding changes in other parts of the country. Fuel prices vary across India due to differences in state-level levies. Since May 15, when the first fuel price hike in over four years was announced, petrol price has gone up by Rs 7.35 per litre, while diesel is up by Rs 7.53 per litre in Delhi, an increase of 7.7% and 8.6%, respectively.

Fuel Price Hike

Source: Petroleum Planning & Analysis Cell, Ministry of Petroleum & Natural Gas

(The prices of Petrol mentioned in the table is for Delhi)

According to industry sources and analysts, the quantum of price hikes effected so far will ease the pressure on the OMCs—Indian Oil, Bharat Petroleum, and Hindustan Petroleum—although they are still retailing petrol and diesel below the market price. More calibrated and staggered price hikes can’t be ruled out yet. Prashant Vasisht, senior vice president and co-group head, corporate ratings at ICRA said that the OMCs’ losses despite the four rounds of hikes remain “unsustainable”.

“…the under-recoveries of oil marketing companies remain stubbornly high due to increasing losses in domestic LPG sales, and high premium to the crude marker. ICRA estimates that at crude price of $120-125/barrel and considering past 10-year average crack spreads of auto fuels, oil marketing companies are incurring a loss of about Rs 700-800 crore daily on the sale of auto fuels and domestic LPG, even after factoring the fuel price hike. This high level of under-recoveries is unsustainable,” said Vasisht.

Global crude oil prices have surged by over 50% due to the West Asia war, which broke out on February 28, and the consequent closure of the Strait of Hormuz. But in a bid to insulate domestic consumers, the government-owned OMCs hadn’t passed on the higher rates for retail petrol and diesel till May 15. In fact, prices of the two auto fuels hadn’t been hiked for four years; they were reduced once during the period—before the 2024 Lok Sabha polls.

Story continues below this ad

Discussions on a hike in petrol and diesel prices had gathered pace within the government, with a consensus that an increase was necessary. The key considerations were the timing and the quantum: whether to announce a steep hike in one go or adopt a staggered approach, according to a top government official. Evidently, a staggered approach was chosen.

According to industry sources, fuel prices in India continue to be among the lowest in the world, with every major developed economy retailing petrol at prices translating to over Rs 150 per litre in rupee terms; the average for the European Union countries is Rs 179 for a litre of petrol and Rs 184 for diesel. Most of India’s neighbouring countries are also selling fuels at higher prices, with petrol retailing at over Rs 135 a litre in Pakistan, Myanmar, Nepal, and Sri Lanka; diesel in these countries is being sold at Rs 125 or more. As per their estimation, the global weighted average of hikes amid the West Asia crisis is 22.4% for petrol and 27% for diesel.

“India, therefore, prices petrol and diesel at or below most of the developing world and at roughly half the European pump, while still raising (prices) less than any non-subsidising peer through the present disruption. Every other major importing economy has passed on the cost to its consumers…India has not. The Indian revision of just over Rs 7 a litre, equivalent to roughly 7.5% off the Delhi base, is the smallest material upward movement of any major economy outside the directly subsidising Gulf producers,” said a source.

The timing of the global surge in energy prices, which clashed with assembly elections in some states, made it politically fraught for fuel prices to be hiked. Once the polls concluded late last month, price hikes were expected. Early May, a top government official had told The Indian Express that a price increase was “inevitable” and “only a matter of time”.

Story continues below this ad

Retail prices of petrol and diesel are deregulated, but in practice, the OMCs—with 90% market share in fuel retail—kept prices stable in consultation with the government. They incurred losses when global prices surged, and earned profits when the prices slumped.

A one-shot steep price hike wouldn’t have been politically palatable, and would have had a shock factor to it, industry sources said. Calibrated price hikes give the government the opportunity to pass on the higher prices to consumers gradually, while keeping a tab on the public reaction and the inflationary impact on an ongoing basis, instead of the inflationary shock and backlash that a steep hike might lead to.

Besides directly having a bearing on the Consumer Price Index (CPI), fuel prices have an indirect impact on inflation as they affect the cost of freight and logistics, as well as energy and input costs for various sectors. “Given the weightage of petrol and diesel in the CPI basket, a 3-5% increase (in fuel prices) likely adds about 15-25 bp (basis points) to the headline inflation, besides second round impact,” Radhika Rao, senior economist and executive director, DBS Bank had said on May 15. She also recounted that back in 2022, amid the global oil and fuel price surge in the wake of Russia’s invasion of Ukraine, retail fuel prices were hiked by about 9-10% in two steps. Other analysts had also expected staggered price hikes.

The crisis has put the OMCs under severe financial stress. On May 12, Petroleum Minister Hardeep Singh Puri had said that the combined losses of the three refiners-cum-fuel retailers were projected at Rs 1 lakh crore in the April-June quarter if prices stayed where they were, enough to wipe out their collective profits for the entire 2025-26 (FY26).

Story continues below this ad

Before hiking retail fuel prices, the government had slashed excise duty by Rs 10 per litre on petrol and diesel late March to blunt the impact of high international prices on the OMCs, but the retailers continue to bleed. The excise duty cut has resulted in the government foregoing revenue of about Rs 14,000 crore a month.

While the country has managed to secure adequate crude oil volumes from non-Gulf suppliers and has not faced a shortage of crude, refiners have been paying for the oil through their nose, spending valuable foreign exchange. With uncertainty over how long the crisis might last, Prime Minister Narendra Modi had appealed for conservation of petroleum fuels, among other measures, aimed at moderating imports and foreign exchange outgo.

The Indian crude oil basket, which averaged 70perbarrellastyear,averagedover70 per barrel last year, averaged over 70perbarrellastyear,averagedover114 in April; so far in May, it has averaged at about 108perbarrel.Refinersareincurringhighadditionalcostsduetoemergencysourcingfromthespotmarketandsurgingshippingandinsurancerates.Oilimportsin2025−26stoodatabout108 per barrel. Refiners are incurring high additional costs due to emergency sourcing from the spot market and surging shipping and insurance rates. Oil imports in 2025-26 stood at about 108perbarrel.Refinersareincurringhighadditionalcostsduetoemergencysourcingfromthespotmarketandsurgingshippingandinsurancerates.Oilimportsin2025−26stoodatabout135 billion. If oil prices sustain at 100inthecurrentfiscalandimportvolumesdon’tfall,theoilimportbillcouldbeupwardsof100 in the current fiscal and import volumes don’t fall, the oil import bill could be upwards of 100inthecurrentfiscalandimportvolumesdon’tfall,theoilimportbillcouldbeupwardsof200 billion for the year.