New Delhi: Oil Marketing Companies (OMCs) are facing negative marketing margins on petrol and diesel as elevated crude oil prices and stable retail fuel prices squeeze profitability, rating agency ICRA said on Wednesday, warning that the ongoing West Asia conflict is pushing up costs across India’s downstream sectors.
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The agency said disruption in the Strait of Hormuz has impacted around 20 percent of global oil and LNG trade, along with supplies of fertilisers and chemicals, tightening availability and driving up input costs for multiple industries.
Prashant Vasisht, Senior Vice President & Co-Group Head, ICRA, said, “The stable pump prices for auto fuels amid elevated crude oil prices is impacting the profitability of the Oil Marketing Companies (OMCs) despite the recent reduction in excise duty. At crude prices of USD 120-125/barrel and long-term averages of crack spreads, the marketing margins on petrol and diesel are estimated to be negative Rs 14/liter and Rs 18/liter respectively. With supplies of LPG blocked from West Asia, international LPG prices have surged. While LPG production has been increased by the refining companies and cargoes procured from the US, Australia etc., addressing the supply side issues to an extent, under recoveries on sale of domestic LPG remain high for the OMCs. ICRA estimates LPG under recoveries at Rs. 80,000 crore for the full year FY2027 if the current under recoveries continue for the full year.”
ICRA said the fertiliser sector is also facing significant pressure from rising input costs, particularly sulphur and ammonia, which are feeding into higher production costs.
The agency noted that the urea pool price has increased to around USD 19/mmbtu in April 2026 from USD 13/mmbtu prior to the West Asia crisis, with a significant portion of gas demand being met through spot LNG imports amid global supply disruptions.
It added that the profitability of phosphatic and potassic fertiliser players is expected to moderate because the recent revision in nutrient-based subsidy rates has not fully reflected the increase in costs, even as some of the burden has been passed on through retail price hikes across categories except di-ammonium phosphate.
Vasisht added, “Significant raw material price inflation coupled with inadequate subsidy revision, is set to moderate the profitability of the P&K fertiliser players vis-à-vis FY2026 levels. The expected impact of El-Nino on the monsoon in the upcoming Kharif season, may also affect the ability of farmers to absorb price increases. With the sharp raw material price inflation for both the urea and non-urea fertiliser segment, ICRA estimates the subsidy requirement for FY2027 at Rs 2.05 trillion to 2.25 trillion, with an upward bias. We expect the Government of India (GoI) to enhance the allocation towards fertiliser subsidy during FY2027, from the budgeted Rs. 1.71 trillion, to maintain a stable credit profile for this sector.”
ICRA said chemical and polymer prices have risen sharply due to disrupted trade flows and higher fuel costs. The agency said the current uncertainty has triggered stockpiling by manufacturers and end-users, but demand may correct once this phase subsides if prices remain elevated. It added that the impact will vary, with specialty chemical players having limited exposure to the Middle East expected to see relatively lower disruption.
The City Gas Distribution (CGD) segment continues to face rising cost pressures due to higher gas prices and currency depreciation, even though it benefits from preferential gas allocation.
ICRA said profitability in the PNG-Domestic segment is expected to remain stable as demand is being met through Administered Price Mechanism gas. However, margins in the CNG segment are likely to face pressure as higher input costs may not be fully passed on to consumers.
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ICRA said elevated energy and input prices are expected to weigh on profitability across downstream sectors in FY2027, which could also moderate credit profiles.
The agency maintained a stable outlook for crude oil refining, supported by healthy product cracks, but assigned a negative outlook to fuel retailing due to steeply negative marketing margins. It also kept a negative outlook on fertiliser, basic chemicals and petrochemical sectors, citing inadequate subsidy support, elevated raw material costs and global oversupply.
