IOCL Expects Significant Drop in LPG Under-recovery Next Month Due to Lower Global Prices

Energy

29th October 2025, 7:24 AM

IOCL Expects Significant Drop in LPG Under-recovery Next Month Due to Lower Global Prices

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Stocks Mentioned :

Indian Oil Corporation Limited

Bharat Petroleum Corporation Limited

Short Description :

State-run Indian Oil Corporation (IOCL) anticipates a 25-37% reduction in losses from selling cooking gas below market rates starting next month. This improvement is driven by a softening in global LPG prices, particularly the Saudi Contract Price. The government has also approved compensation for previous under-recoveries, providing financial support to IOCL and other Public Sector Undertaking (PSU) Oil Marketing Companies (OMCs).

Detailed Coverage :

Indian Oil Corporation Limited (IOCL), a major fuel retailer serving approximately 15.5 crore LPG customers, forecasts a substantial decrease in its financial under-recovery from selling Liquefied Petroleum Gas (LPG) below market prices. Anuj Jain, IOCL’s Director (Finance), stated that the current loss of around ₹40 per cylinder is expected to fall to ₹25-30 per cylinder from next month. This reduction is primarily attributed to the softening of the Saudi Contract Price (CP), a key benchmark for LPG imports. Traders link this price drop to increased competition from the US, lower crude oil prices, and reduced demand.

IOCL reported a net LPG under-recovery of ₹2,120 crore in the second quarter of FY26. To mitigate these losses, the government has approved compensation for PSU OMCs for under-recoveries in FY25 and FY26. IOCL's share of this compensation is ₹14,486 crore, to be disbursed in monthly installments of ₹1,207 crore starting November 2025.

Impact: This news is significant as it directly affects the profitability of one of India's largest state-owned energy companies. Reduced under-recoveries improve IOCL's financial health, potentially leading to better financial results and investor confidence. The government's compensation mechanism also highlights its commitment to ensuring the stability of fuel supplies. The overall under-recoveries for PSU OMCs were ₹41,270 crore in FY25 and are projected higher for FY26, making these recovery efforts crucial.

Difficult Terms: * **Under-recovery**: The financial loss incurred when a product is sold at a price lower than its actual market cost. * **Saudi Contract Price (CP)**: A benchmark price set by Saudi Aramco for propane and butane, which significantly influences global LPG pricing. * **PSU OMCs**: Public Sector Undertaking Oil Marketing Companies are government-owned companies involved in the marketing and distribution of petroleum products like LPG. * **LPG**: Liquefied Petroleum Gas, a common fuel for cooking. * **FY26**: Refers to the Financial Year 2025-2026. * **Q2 FY26**: The second quarter of the Financial Year 2025-2026 (July to September 2025). * **Cumulative basis**: Calculating total financial figures over a defined period, rather than on a per-transaction or monthly basis.