Oil retailers face margin pressure: Moody’s

Global benchmark Brent crude oil recently climbed to about USD 119 per barrel on March 9 before falling to just under USD 90 the next day amid geopolitical tensions

State-owned fuel retailers in India are likely to face pressure on margins and cash flows as they continue to absorb the impact of fluctuating global energy prices without matching increases in domestic fuel rates, according to a report by Moody's Ratings.

The agency said retail prices of petrol and diesel have remained largely unchanged in India since April 2022 despite major swings in international oil and gas prices. This reflects the government’s influence over domestic fuel pricing, which often prevents companies from quickly passing on higher costs to consumers.

India’s three major oil marketing companies — Indian Oil Corporation, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited — operate nearly 90 per cent of the country’s fuel retail outlets. Because of their dominant position and role in maintaining price stability, these firms frequently bear the burden when global prices rise.

Global benchmark Brent crude oil recently climbed to about USD 119 per barrel on March 9 before falling to just under USD 90 the next day amid geopolitical tensions. Despite this volatility, retail fuel prices in India have not been revised, forcing the companies to absorb higher procurement and refining costs.

India’s heavy reliance on imports further increases the pressure. The country imported about 88 per cent of its crude oil and 51 per cent of its natural gas needs in the financial year 2024-25. When global prices rise, the gap between rising costs and stable retail prices squeezes marketing margins and weakens operating cash flows.

Moody’s noted that a similar situation occurred after the Russia-Ukraine conflict in 2022, when the three companies incurred heavy losses on petrol and diesel sales. However, the losses were later partly offset as crude prices softened while retail prices remained unchanged.

The report also noted that oil companies may face losses on domestic LPG sales, although these could be compensated later by the government. The Centre had earlier approved Rs 30,000 crore compensation after the companies reported losses of nearly Rs 40,000 crore in 2024-25.