Fitch warns Indian oil companies are running out of buffer as crude oil prices soar- The Week

Each time you fill up your fuel tank, India’s state-owned oil companies are losing money on the transaction. So far, it has helped the economy. However, Fitch Ratings today hinted that this arrangement could potentially become financially dangerous.

Retail petrol and diesel prices in India have been frozen since April 2022, nearly four years, even as Brent crude has crossed $108 per barrel and is hovering well above Fitch’s own “adverse scenario” threshold of $100/barrel.

State-run oil marketing companies, such as IOC, BPCL, and HPCL, are currently losing approximately ₹18 per litre on petrol and ₹35 per litre on diesel, according to market estimates. Union Petroleum Minister Hardeep Singh Puri publicly acknowledged in March 2026 that OMCs were losing around ₹24 a litre on petrol and ₹30 a litre on diesel.  In LPG, the total industry under-recovery in FY25 alone was estimated at ₹40,500 crore.

Fitch stated that the core issue was not crude price volatility, but the duration. A brief spike can be absorbed, but a sustained period of high crude with frozen pump prices could destroy EBITDA, drain working capital, and shrink free cash flow in a way that damages credit profiles over time.

IOC (rated BBB-/Stable) has the most diversified business model (pipelines, petrochemicals, gas), providing some buffer, Fitch noted.

BPCL (BBB-/Stable) faces tighter credit headroom because it is simultaneously running a large expansion and energy transition investment programme. This meant that it cannot delay capex spending even as operating cash flows shrink.

HPCL (BBB-/Stable) has limited headroom, Fitch noted, but the ratings agency expects improvement once its major joint-venture projects come online.

Fitch noted that New Delhi had previously intervened through excise duty cuts, retail price adjustments, and direct compensation, with the Centre reportedly considering a ₹30,000–₹35,000 crore subsidy payout to OMCs for LPG losses. In fact, a ₹2–4/litre petrol-diesel price hike was under active consideration as of early May 2026. IOC Chairman A S Sahney publicly stated in January 2026 that the company expected government compensation.

Fitch had not factored any of these government support measures into its statement. This means policy relief could offset this credit warning.