India's Oil Marketing Companies Face Margin Squeeze as Crude Prices Surge

Oil marketing companies (OMC) in India are facing a new challenge as crude oil prices have risen sharply, causing marketing margins for fuels to turn negative. According to estimates by ICICI Securities, retail fuel marketing margins will be ₹7.4 per litre for petrol and ₹10.3 per litre for diesel in September. However, the losses are expected to be partly offset by gains realised during the previous two months.

The sharp rise in crude oil prices is attributed to US-Iran clashes, which have stoked supply fears and pushed Brent crude above $107 a barrel. Despite this, OMCs may still report improved earnings for the September quarter, thanks to higher marketing margins seen in June and July. Crude prices fell sharply in the first half of July, allowing auto-fuel marketing margins to recover sequentially.

Strong refining margins remain a key cushion against deteriorating retail fuel margins. Singapore Gross Refining Margins (GRM) averaged $24.5 per barrel during April-August, well above the FY21-26 average of $5.6 per barrel. Rising crude oil prices compress GRMs for OMCs because retail prices of petroleum products do not adjust immediately.