OMCs seek Rs 75,000 crore for fuel losses; Centre to decide in 2027

New business data points to the fact that The government will decide on compensation for state-run oil marketing firms (OMCs) only after assessing the extent of their losses in 2027, ruling out any immediate decision based solely on elevated oil price marks, a senior government official told Moneycontrol.

The three oil marketing firms including Indian Oil, Bharat Petroleum, and Hindustan Petroleum have been incurring huge losses on the sale of petrol, diesel and liquified petroleum gas (LPG) selling fuels below market prices amid the raging war in West Asia.

“As far as the OMCs are concerned, we will have to look at the extent of their losses. There is no point in taking a final view immediately. We will assess the losses in 2027 and then examine whether the OMCs need to be compensated. As far as compensation to the oil marketing firms is concerned, that will have to be assessed based on the extent of the losses and the overall situation,” the source stated, adding that the government cannot take a view on compensation merely because crude prices have moved up.

According to official sources, OMCs have touched out to the government for a compensation for close to Rs 75,000 crore losses incurred on fuel sales between April to June amid elevated oil price marks which remained above $100/bbl for most of these three months.

"The finance ministry is making an assessment and is in touch with the petroleum ministry regarding this,” another source stated.

The government extended nearly Rs 1.23 lakh crore in financial backing to OMCs which includes excise duty topline foregone to keep fuel prices unchanged for 78 days after the West Asia crisis, senior officials had stated on June 9.

Prior to this, the government provided Rs 22,000 crore in 2022 and Rs 30,000 crore in 2025 to offset OMCs losses made on selling LPG below market prices. The compensation announced last year was to be paid in twelve tranches; and accordingly, the OMCs have received five equal monthly installments of compensation.

“We will have to see how the situation evolves and how the losses actually materialise before deciding what needs to be done. OMCs will have to absorb some cost; that's the case in every country buying oil right now, not just India. But it's around how you manage it, and we are managing it,” the first official further noted.

Union Petroleum Minister Hardeep Singh Puri stated on July 2 that the three state-run OMCs recorded an accumulated loss of Rs 74,781 crore in the April-June quarter.

Separately, the petroleum ministry put its cumulative under-recovery on fuel sales during the quarter at Rs 1.88 lakh crore. This comprised Rs 19,905 crore on petrol, Rs 1.44 lakh crore on diesel and Rs 24,148 crore on LPG. Under-recovery measures the gap between prevailing retail prices and estimated market-linked prices, and is distinct from the accumulated loss figure.

Crude prices to soften over next six months

The government anticipates crude prices to soften over the next six months and not cross $100/bbl on expectations of a supply glut in the market.

“The expectation is that there will be a glut in the market because the Middle Eastern countries that are at present unable to sell their oil will eventually need money and will have to come back to the market. We do not expect oil price marks to cross $100/bbl,” the senior official stated.

Brent crude prices rose to $97 per barrel on Monday morning after another US attack on Iranian oil tankers, while Tehran threatened to establish a new restricted zone outside the Strait of Hormuz, raising concerns over further supply disruptions.

“The OMCs are facing pressure because oil price marks have moved above $95 a barrel, but this is not simply a question of currency or foreign exchange availability. India’s foreign exchange position is firm, and the currency is not the immediate constraint. The same problem is being faced by countries across the world, so the focus has to be on how we manage the impact,” the official stated.

Industry sources additionally stated that OMCs can absorb crude prices in the $85–90 a barrel range, operating near break-even at these marks, but a sustained climb in crude prices above $95-100 could force a rethink on retail prices.  

At present, OMCs' marketing margins on the sale of petrol stand at Rs 5 a litre, while diesel faces a negative marketing margin of Rs 15 a litre, according to ICRA’s calculations.  

The senior official noted that India has significantly diversified its oil sourcing and the government’s focus is on managing supply disruptions. “We have been working on diversification for a long time, and the sourcing of crude is not dependent on a single market. The objective is to ensure that we have the flexibility to manage disruptions and changes in the international oil market,” the official stated.