Fuel Crisis: Indian OMCs Bleeding Up to Rs 30 Per Litre
A Jefferies report reveals Indian oil marketing companies are facing steep losses on petrol and diesel due to high crude and freight costs.
India's oil marketing companies (OMCs) are currently grappling with a severe financial squeeze, incurring staggering losses on every litre of fuel sold. According to a recent equity research report by Jefferies, the rising cost of procuring crude oil combined with skyrocketing shipping charges has pushed marketing margins deep into the red, leaving companies to absorb massive losses on petrol and diesel.
The Scale of the Loss
The Jefferies report, titled “Energy Market Letter: Volume XXII,” provides a grim picture of the current pricing dynamics. Based on a 15-day average pricing model, the research estimates that oil companies are losing approximately Rs 26 per litre on petrol and a whopping Rs 30 per litre on diesel.
The report attributes these steep losses to the high procurement costs for OMCs, which are currently aligned with the Indian crude basket price of roughly US$ 125 per barrel.
The 'Freight Factor': Shipping Costs Explode
While crude prices are a primary driver, the report highlights a more sudden and aggressive catalyst: the surge in freight rates. The ongoing conflict in the Middle East has fundamentally altered the economics of transporting oil to Indian shores.
- Dramatic Increase: Freight rates have surged approximately eight times since the start of the conflict.
- Weekly Spikes: Rates recently saw a week-on-week increase of 8%.
- Impact on Landed Cost: In a shocking shift, freight now accounts for more than 25 per cent of the total landed cost of crude oil. Before the conflict, this cost was a mere 3 per cent.
Middle East Turmoil and Supply Disruptions
The financial burden is being exacerbated by a decline in crude exports from the Middle East. Heightened attacks on shipping routes and oil infrastructure, particularly in the Gulf of Oman, have throttled the flow of oil.
"Overall flows (ex-Iran) have declined to ~75% of pre-war level (~95% at end-Sep) due to heightened attacks in the Gulf of Oman."
This decline in available supply, paired with the increased risk and cost of transport, ensures that procurement expenses remain elevated, further prolonging the pressure on fuel marketing margins.
A Tale of Two Margins
Interestingly, the report points out a contradiction in the industry's financial health. While the marketing side of the business—selling petrol and diesel to consumers—is bleeding money, refining margins remain elevated. This creates a complex scenario where the companies are performing well in processing oil but losing significantly on the retail distribution of the final product.