India has moved to restrict refinery margins after imposing a windfall levy on fuel exports aiming to cushion the growing losses on domestic petrol and diesel sales. The ongoing conflict in West Asia has triggered a sharp rise in global crude prices which has left state-run oil marketers struggling to keep retail rates unchanged while refinery profits balloon, news agency PTI reported citing sources.
To counter the uneven gains and ensure adequate domestic availability, the government recently levied a Special Additional Excise Duty on diesel and ATF exports. This move was aimed at preventing refiners from earning excessive profits in an overheated global market.
Notably, the Centre has capped refinery margins at 15 dollars per barrel. Any revenue earned above this ceiling is now being adjusted as a discount on fuel supplied to state-owned marketing companies, effectively helping offset their retail-level losses.
OMCs impose steep discounts to reduce refinery transfer prices
On March 26, oil marketing companies fixed internal fuel prices at steep discounts of up to Rs 60 per litre compared to import costs. The companies have started applying discounts on the refinery transfer price, which is the benchmark used for internal fuel movement between refining and marketing arms.
For the latter half of March, diesel saw a discount of Rs 22,342 per kilolitre, bringing the RTP down from Rs 85,349 per kl to Rs 63,007 per kl. In the first fortnight of April, the discount was increased sharply to Rs 60,239 per kl, dropping the RTP from Rs 146,243 per kl to Rs 86,004 per kl.
ATF rates were also slashed after applying a discount of Rs 50,564 per kl, reducing its RTP from Rs 127,486 per kl to Rs 76,923 per kl. Kerosene’s RTP too fell from Rs 123,845 per kl to Rs 77,534 per kl after a discount of Rs 46,311 per kl.
Why is India’s fuel pricing system under pressure?
India usually priced petrol and diesel using the import parity system, which valued the fuels as if they were fully imported. This shifted to trade parity pricing in 2006, mixing import and export parity benchmarks. The system allowed standalone refiners to secure healthy margins even after petrol and diesel were deregulated in 2010 and 2014.
Despite deregulation, retail fuel prices have remained frozen since April 2022. This has forced OMCs to absorb losses during periods of high crude prices and reap profits only when global rates soften.
Under-recoveries soar as global prices jump
The Ministry of Petroleum and Natural Gas stated on X on April 1 that, “With global petroleum prices up by up to 100 per cent in the last one month, PSU OMCs are incurring under-recoveries of Rs 24.40 per litre on petrol and Rs 104.99 per litre on diesel at retail selling price level as on 01.04.2026.” Unlike LPG, where losses are compensated by the government, petrol and diesel do not receive financial support. As crude prices rise, these gaps have widened sharply.
Analysts warn of impact on private and standalone refiners
While OMCs believe capping RTP will spread the burden across the sector, experts caution that standalone refiners without marketing networks may face disproportionate pressure. Sources added that the move could undermine the credibility of market-linked pricing for private players, further distorting the industry’s economics.
