Whalesbook
Ongoing Losses for Oil Companies
Despite raising prices for petrol and diesel three times in May 2026, India's major oil marketing companies (OMCs) like Indian Oil, Bharat Petroleum, and Hindustan Petroleum continue to lose money daily. The increases, totaling about ₹4 per litre, haven't closed the gap between high global crude oil prices—driven by supply issues in West Asia to $104-$110 per barrel—and the controlled domestic selling prices. Government officials note that while these hikes have lessened the daily financial hit, the companies must absorb the extra import costs without direct government subsidies.
States' Fiscal Concerns Over Fuel Taxes
With the central government having already adjusted excise duties, the responsibility for providing consumer relief now falls to the states. However, states heavily rely on fuel taxes as a key source of independent revenue, as petroleum products are not included in the national Goods and Services Tax (GST) framework. For many states, fuel VAT (Value Added Tax) is a significant and dependable income stream, sometimes making up as much as 30% of their total tax revenue. Lowering VAT or bringing fuel under GST would create major budget shortfalls, impacting infrastructure and social spending.
Industry Risks and Investor Concerns
Analysts are observing how different oil companies are affected. Hindustan Petroleum, which focuses more on fuel sales, faces higher risks compared to Indian Oil Corporation, which has broader refining operations and other profitable segments like jet fuel. Although the sector recently reported strong profit gains year-on-year, this was mainly due to stable crude prices in earlier periods. If oil price volatility continues, this performance may not last. Investors are cautious about the industry's vulnerability to government pricing policies, suggesting it leads to a lower stock valuation than might otherwise be justified by earnings potential.
Path Forward for Fuel Taxation
There's a growing call for lasting solutions to stabilize the fuel sector. Lawmakers have suggested discussions with the Finance Ministry about gradually bringing fuel under the GST system. Supporters believe this could simplify taxes, reduce transport costs, and help control inflation. However, given that both the central and state governments depend heavily on fuel tax revenue, a comprehensive GST integration is seen as a long-term challenge. For now, the industry's financial health will continue to depend on global oil prices and the GST Council's ability to balance consumer relief with government revenue needs.