A Jefferies report estimates Indian oil marketing companies (OMCs) are facing marketing losses of Rs 26/litre on petrol and Rs 30/litre on diesel due to high crude procurement costs and a sharp increase in freight rates.
Oil marketing companies (OMCs) in India are facing estimated losses of up to Rs 30 per litre on petrol and diesel sales as rising crude procurement costs and elevated shipping charges continue to put pressure on their profitability, according to a Jefferies equity research report.
Steep Marketing Losses
The report, titled “Energy Market Letter: Volume XXII”, estimated that oil companies are currently incurring marketing losses of Rs 26 per litre on petrol and Rs 30 per litre on diesel, based on 15-day average pricing. Highlighting the pressure on fuel retailers, the report stated, “Marketing margins deep in the red: Procurement cost for OMCs is similar to the Indian crude basket price of US$ 125/bbl, leading to steep losses.”
The findings indicate that oil companies are facing significant pressure on their fuel marketing businesses as disruptions to crude supplies from the Middle East continue to raise import costs.
Soaring Shipping Costs
According to Jefferies, freight rates have increased sharply since the beginning of the Middle East conflict, adding substantially to the cost of bringing crude oil into India. The report stated, “Freight rates increased 8% w/w and are up \~8x from the start of the conflict.” It further noted that freight now accounts for more than 25 per cent of the landed cost of crude oil, compared with just 3 per cent before the conflict.
The higher transportation costs are adding to the financial burden of Indian oil companies, which depend heavily on imported crude oil.
Middle East Supply Disruptions
Jefferies also highlighted a renewed decline in Middle Eastern crude exports following heightened attacks on oil infrastructure and shipping routes. The report stated, “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.”
The decline in supplies and higher shipping costs could keep crude procurement expenses elevated, prolonging pressure on fuel marketing margins. While the report noted that refining margins remain elevated, the steep losses on petrol and diesel sales highlight the contrasting pressures facing India’s oil marketing companies. The findings come at a time when oil companies are navigating higher crude import costs and uncertainty over the duration of supply disruptions in the Middle East.
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