IOC, BPCL, HPCL Shares Fall: Why OMC Stocks Are Under Pressure

OMC stocks have been under pressure this year. On a YTD basis, shares of IOC, BPCL and HPCL are down around 20%. One big reason is the sharp rise in crude oil prices.

Crude oil prices have jumped nearly 60% in the last one month, moving from around $70 per barrel to over $110 per barrel. For India’s oil marketing companies, this is a big problem. Their cost of buying and refining fuel has gone up, but petrol and diesel prices at fuel pumps have not increased in the same way.

This has created a gap between what these companies spend and what they recover from customers. That gap is now hurting state-run oil marketing companies like IOC, BPCL and HPCL.

What Is the Problem?

Oil marketing companies buy crude oil at global prices. So, when crude becomes expensive, their cost also rises.

But petrol and diesel prices in India have stayed mostly unchanged. This means these companies are selling fuel at prices that are lower than their actual cost.

Think of it like this. Suppose the actual cost of fuel rises from ₹60 per litre to ₹100 per litre. Ideally, the selling price should also rise. But if the company continues to charge the same old price, it has to absorb the extra cost.

That gap is called under-recovery. In simple words, under-recovery means the company is not able to recover its full cost from the customer.

How Much Are OMCs Losing?

The numbers show how serious the pressure has become. Reports suggest that fuel retailers are losing around ₹20 per litre on petrol and around ₹100 per litre on diesel.

This is a big concern because petrol and diesel are sold in huge volumes every day. So even a small loss per litre can become a very large total loss. When the loss is as high as ₹100 per litre on diesel, the pressure becomes much bigger.

Why Diesel Is the Bigger Problem

Diesel is more important because it is used heavily in trucks, buses, farming equipment, factories and logistics. So, if diesel prices are increased sharply, transport costs may rise. That can make many goods more expensive.

But if diesel prices are not increased, OMCs have to keep absorbing the loss. This is why diesel pricing becomes a difficult decision for the government.

Why Is the Government Holding Fuel Prices?

The government is trying to avoid a sudden rise in petrol and diesel prices.

• Fuel prices affect many parts of the economy. If diesel becomes expensive, transport costs can rise. If transport costs rise, the price of daily-use items can also go up.
• So, keeping fuel prices stable helps control inflation in the short term.
• But this also means the burden shifts to IOC, BPCL and HPCL.

No Bailout Package in Sight

The bigger worry for OMCs is that there is no clear bailout package in sight right now. This means IOC, BPCL and HPCL may have to continue absorbing these losses on their own, even as crude prices remain high and retail fuel prices stay unchanged.

The pressure can reduce only if crude oil prices fall, petrol and diesel prices are increased, the government announces support later, or taxes are adjusted. Until one of these things happens, the losses will continue to sit on the books of OMCs and hurt their financial performance.

What This Means for OMC Stocks

For IOC, BPCL and HPCL, the main concern is margin pressure. When these companies sell petrol and diesel below cost, every litre sold adds pressure to profitability. This can hurt quarterly earnings, cash flows and overall investor confidence.

The risk becomes bigger if crude prices stay high for a longer period. In that case, OMCs may have to keep absorbing losses unless fuel prices are increased or the government provides support. This creates uncertainty around future profits, which is why OMC stocks can remain volatile.

Investors will mainly track three things from here: crude oil prices, any change in petrol and diesel prices, and any signal of government support. If crude falls, pressure may reduce. If fuel prices are increased, margins may improve. If the government announces compensation, sentiment may turn positive. But until there is clarity on any of these factors, IOC, BPCL and HPCL may continue to trade under pressure.

Conclusion

Crude oil has jumped nearly 60% in the last one month, but petrol and diesel prices in India have stayed stable. This has created a large gap between the cost of fuel and the price at which OMCs are selling it.

With losses reportedly around ₹20 per litre on petrol and ₹100 per litre on diesel, IOC, BPCL and HPCL are facing heavy pressure.