India OMCs Cut Refinery Prices to Offset Losses Amid Fuel Freeze

In a significant shift since fuel price deregulation, state-run oil marketing companies (OMCs) Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation have begun paying discounted rates to refiners for petrol, diesel, aviation turbine fuel (ATF) and kerosene to contain mounting losses arising from a prolonged freeze in retail fuel prices.

According to sources, the OMCs fixed discounted refinery transfer prices (RTP) on March 26, effective retrospectively from March 16. The move comes as global crude oil prices surged from around $70 per barrel to over $100 amid geopolitical tensions, while domestic retail prices of petrol and diesel have remained unchanged since April 2022. This mismatch has forced OMCs to absorb substantial under-recoveries , prompting them to share the financial burden with refiners.

The discounts are steep. For diesel, a reduction of about ₹22 per litre was applied in the second half of March, which widened to nearly ₹60 per litre in the first fortnight of April. Similarly, RTP cuts of around ₹50 per litre on ATF and ₹46 per litre on kerosene have been implemented. These reductions effectively mean refiners are being paid significantly below the import-parity price for fuels.

The impact is expected to be most severe on standalone refiners such as Mangalore Refinery and Petrochemicals Limited, Chennai Petroleum Corporation Limited and HPCL-Mittal Energy Limited, which rely heavily on OMCs for fuel offtake and lack a strong retail presence. In contrast, integrated public sector firms like IOC, BPCL and HPCL are better positioned to offset part of the losses across their refining and marketing operations.

Private refiners, including Reliance Industries Limited and Nayara Energy, may also face margin pressures if similar discounted pricing is extended to them, as they too sell a large share of their output to OMCs, which control nearly 90 per cent of the country’s fuel retail network.

Traditionally, fuel pricing in India followed an import parity or trade parity mechanism, ensuring protection for refinery margins. However, the current approach marks a deviation from market-linked pricing, raising concerns among analysts about distortion in pricing signals and the disproportionate burden on independent refiners.

The financial strain on OMCs is substantial. As per official estimates, under-recoveries stand at about ₹24.40 per litre on petrol and ₹104.99 per litre on diesel as of April 1. Unlike LPG, there is no direct government compensation for losses on auto fuels.

While OMCs view the RTP discount as a way to distribute losses across the value chain, experts caution that it could squeeze refining margins and unsettle the pricing framework in the sector if continued for long.