Oil companies are making huge profits
Crude oil prices are soft in the international market, oil companies are making huge profits, yet why are the prices of petrol and diesel not decreasing? On one hand, the coffers of Oil Marketing Companies (OMCs) are filling up, and on the other hand, the common consumer of the country is facing the brunt of inflation. The recent report of credit rating agency CRISIL shows that the operating profit of oil companies is going to increase by more than 50% to reach $18-20 per barrel in this financial year. This profit is likely to be at a record level, but its benefits are not reaching the public.
Oil companies are getting double profits
The business of oil marketing companies mainly runs through two businesses: refining and marketing. In refining, they convert crude oil into fuel like petrol, diesel, on which they get Gross Refining Margin (GRM). The second is marketing, i.e. selling the finished fuel, on which they get marketing margin. According to CRISIL, there is going to be a tremendous improvement in marketing margins this year, which will more than compensate for the possible decline in refining margins. International crude oil prices are expected to soften to $65-67 per barrel, due to which companies will get raw materials at lower prices. At the same time, due to slow global demand, refining margin may remain marginal at $4-6 per barrel. But the real game is in marketing.
The prices of petrol and diesel in the country remain almost stable. There has been no reduction in prices. Due to this stability, marketing margins are estimated to reach $14 per barrel (i.e. approximately ₹8 per liter). This marketing margin is so huge that the overall operating margins of companies will skyrocket. Last year, when the price of crude oil was $83 per barrel, the operating profit of the companies was still at the peak of $20 per barrel. The same trend is expected to be seen this year also. It is important for common people to understand that crude oil becomes cheaper in the international market, but if domestic retail prices do not decrease, then oil companies directly benefit.
Are old losses being compensated?
The answer to why there is such a big jump in the earnings of oil companies is found in their performance in the past years. In the last 5 financial years, when crude oil prices were very volatile due to global geopolitical instability and domestic prices were in a tight range, the margins of companies were badly affected.
According to a report by Financial Express, in FY 2023, when crude oil was averaging $93 per barrel, the operating profit of companies had fallen to only $0.13 per barrel. That means they suffered huge losses. However, long-term operating profits of oil companies have remained normal at around $11 per barrel. In the current financial year 2025, companies have earned an operating profit of $12 per barrel even when the price of crude oil is $79 per barrel.
Experts believe that companies are now recovering their past losses and also strengthening themselves for future large capital expenditure (Capex). This year’s strong profitability is expected to increase the total cash flow (cash accruals) of companies from last year’s ₹ 55,000 crore to ₹ 75,000,000 crore. With the help of this capital, these companies are planning a huge capital expenditure of ₹ 90,000 crore for brownfield capacity expansion (ie increasing the capacity of the existing plant). According to CRISIL, due to better earnings, their dependence on external debt will reduce and their credit profile will also improve.