 "OMC, crude oil, fuel")
India’s state-owned oil-marketing companies (OMCs) are staring down an abyss in 2025 on the heels of a disappointing annual budget for oil and gas for 2025-26 and from the volatility in oil and gas markets caused by the Trump administration’s disruptive energy tariff policies. These developments come amid discounted Russian oil flows, a mainstay of gross refining margins for Indian refiners, slowing to a trickle in the face of the latest US sanctions and expensive alternative supplies.
US President Donald Trump initially threatened tariffs as high as 60 per cent on China and 25 per cent on Mexico and Canada, subsequently reducing rates to 10 per cent for Chinese imports and for energy imports from Canada and Mexico. The changes were effective from Tuesday but have been delayed by at least a month for its North American trading partners.
Trump’s tariffs have roiled oil markets over concerns of potential near-term supply disruptions. After an initial spurt, gains on crude oil prices more than halved on the news that some tariffs might be delayed. European benchmark Brent futures are now at $76 per barrel, after closing at around $82 per barrel on January 15, reflecting the volatility from Trump’s policy announcements.
Trump on Tuesday ordered reinstating a “maximum pressure” campaign on Iran, which had last year illegally exported around 1.7 million barrels per day (bpd) of oil, primarily to China. In response to the news that Trump would sign the order, benchmark crude oil prices spiked nearly $2 per barrel, UK market intelligence provider Energy Intelligence reported.
China, in turn, has slapped retaliatory tariffs of 15 per cent on US liquefied natural gas (LNG) and 10 per cent on imports of US crude oil. Prices of European gas benchmark TTF, a reference point for spot LNG rates, have increased by more than 30 per cent since December to a 15-month high of over $16 per million British thermal units, said Greg Molnár, gas analyst at the International Energy Agency, in a LinkedIn post.
Volatile markets
Volatile oil prices impact India’s fiscal position and oil company finances, and a sharp rise in LNG prices threatens to unravel India’s projected 12 per cent growth in demand for the fuel this fiscal. While traders may embrace volatility, state-run refiners and Indian policymakers prefer price stability because they are devoid of instruments to hedge volatility at the pump by passing on rate changes to consumers.
“Certainly it helps to have a more stable pricing regime,” said Prashant Vasisht, senior vice-president and co-group head, corporate ratings, at Icra, a US Moody's affiliate. “Overall, it could impact their marketing margins because auto fuel levels
are static. Higher prices eat away marketing margins.”
There have been concerns of run cuts by Indian refiners, but supply availability from other crude oil suppliers does not seem to be an issue for now, said Singapore-based consultancy Facts Global Energy in a report. “Of course, this does impact margins.” The country’s crude oil basket averaged $82.5 per barrel as of January 21, a sharp rise from $73.3 per bbl in December 2024, it said. The February average is at $78.4 per bbl, according to the oil ministry data.
The finances of oil-marketing companies rest on a Trishul, an industry source explained. The three prongs of profitability are gross refining margins, or what a refiner makes turning crude oil into fuels; marketing margins, or what Indian Oil or Bharat Petroleum earn from selling petrol and diesel at pumps; and liquefied petroleum gas (LPG) margins. At the moment all three look challenged.
Singapore GRMs, a benchmark for Indian margins, ranged from an anaemic 30 cents to $3 per barrel in the last two weeks. The GRMs remain weak, a Mumbai-based senior analyst said. Margins have more than halved for state-run refiners in the just concluded December quarter from a year earlier, the company data shows.
Marketing margins also seem inadequate to cover low profits from refining. Marketing margins have more than doubled from as low as Rs 2.60 per litre late last month, when crude oil was over $80 per barrel, to Rs 6 per litre at $76.4 per barrel crude, but the sensitivity to crude oil prices is high, and the current volatility impacts profits at the pump.
LPG drag
Marketing margins at Rs 5 per litre are “marginally above average,” the analyst said. Typically, in the past, oil-marketing companies would use the swings in marketing margins to compensate for losses incurred from fixed prices of petrol and diesel. LPG under-recoveries were compensated — as seen in the Rs 22,000 crore provided to oil marketing companies by the
government in 2022-23.
That support is no longer available. Marketing margins on petrol and diesel need to be around Rs 8 per litre to compensate for losses incurred on LPG, another analyst said. That would require crude oil at $70 per barrel levels on a sustained basis, something unlikely given the current turmoil in oil markets from Trump’s energy policies. The US President’s actions against Iran threaten to take more than 1 million bpd of crude oil out of the market — around a fifth of India’s oil demand. And with Saudi Arabia-led Organization of the Petroleum Exporting Countries (Opec) oil grouping reportedly comfortable with oil prices of $80 per barrel, it may be reluctant to compensate for the losses of Iranian barrels with Opec barrels.
“LPG is a substantial drag on the profitability of OMCs,” Vasisht said. Subsidies provided for direct benefit transfer of Rs 1,500 crore, and the Rs 9,100 crore allocated for the Ujjwala LPG scheme for 2025-26 are inadequate, he added. OMCs are expected to post under-recoveries of Rs 40,000 crore on LPG sales by the end of this financial year, analysts estimate.
Indian Oil’s earnings (April-December), after adjusting for LPG under-recoveries, would have been Rs 19,000 crore/Rs 20,000 crore and not Rs 5,500 crore, said Smartsun Capital’s Sumeet Rohra, a fund manager, in the company’s latest quarterly earnings call, according to the transcript. Rohra said that the company had lost a staggering Rs 95,000 crore in market cap, and the current market cap is just a third of its assets of Rs 4,85,000 crore. Indian Oil Director of Finance Anuj Jain replied that “the government is fully seized of this matter and is definitely going to support OMCs”.
Oil minister Hardeep Singh Puri also suggested some form of compensation to OMCs during a press briefing in Mumbai last month. But the government has made no provision in the 2025-26 Budget, presented to Parliament on February 1, to compensate state-run refiners for losses incurred in selling domestic LPG to households at below cost. Fuel prices were unchanged last year because of important state and Lok Sabha elections.
Sanction woes
Adding to refiners’ woes is the likelihood of erosion in discounted crude oil from Russia for the next few months. A shortfall in February will be minor, but state-run refiners expect a larger supply gap in March. There may be interruptions in flows in April and uncertainty further down.
Facts Global estimated that 450,000 bpd of Russian crude oil exports to India were at risk following the January 10 sanctions by the US. Others estimate it at 600,000 bpd. State-run refiners have issued tenders for over 15 million barrels of crude oil for deliveries in March and April, with some of the barrels changing hands at a $4-5 per barrel premium over the Dubai benchmark — that compares to premiums of $1-1.5 per barrel prior to sanctions, increasing crude oil sourcing costs for refiners, and further impacting profitability.
