Oil Companies Consider Pricing Freeze to Stem Mounting Losses

State-owned oil marketing companies in India are weighing a strategy to pay refineries less than the imported prices of petrol and diesel to mitigate their burgeoning losses caused by fixed retail fuel prices, a move likely to squeeze the margins of standalone refiners.

State-owned oil marketing companies (OMCs) in India are contemplating measures to curb their escalating losses from a persistent retail fuel price freeze. This strategy involves paying refineries a price lower than the global import rates for petrol and diesel, a decision that threatens to clamp down on the profit margins of standalone refineries such as MRPL, CPCL, and HMEL.

Despite a sharp increase in international oil prices, which have surged past USD 100 amid the ongoing West Asia conflict, the OMCs have been absorbing the financial impact, with domestic petrol and diesel prices remaining stagnant. As the conflict continues, OMCs are exploring options like fixing a discount or freezing the refinery transfer price (RTP), which dictates the internal price for fuel sales from refineries to marketing arms.

This potential policy shift could compel refineries to shoulder some elevated crude costs if such global rates persist. Although integrated state-run firms like IOC, BPCL, and HPCL can partly offset these pressures, standalone refiners may incur significant financial squeezes due to their reliance on RTP for revenue. Analysts caution this move could further distort market commitment and impact independent refiners more severely.

(With inputs from agencies.)