Yogesh Patil decodes why petrol, diesel prices may rise further

Speaking to ET Now, energy analyst Yogesh Patil from Dolat Capital said the recent increase of Rs 3 per litre in fuel prices is “a very modest, small price hike” and is unlikely to fully offset the losses being incurred by the state-run fuel retailers. However, he noted that the step would still help reduce the daily financial strain faced by OMCs.

According to Patil, the latest revision could reduce losses by nearly Rs 141 crore per day and offer some relief on the working capital front. Yet, he stressed that much steeper hikes would be required to completely eliminate under-recoveries on petrol and diesel sales.

“As per our calculations, to eliminate the losses on petrol and diesel, a further price hike of Rs 11 per litre is required,” Patil said.

The remarks come at a time when crude oil prices remain volatile and concerns over inflation are forcing policymakers to walk a tightrope between shielding consumers and protecting the financial health of oil retailers.

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Investors Reading the Move as a Policy Signal
Market participants appear to be interpreting the latest fuel price increase as more than just a routine revision. According to Patil, the move has reinforced confidence that the government could gradually return to a more deregulated fuel pricing regime.

“The magnitude of this price hike is instilling confidence in investors that the era of deregulated pricing of petrol and diesel may commence,” he said.

He added that the hike could also ease concerns surrounding the erosion of book value and the rising dependence of OMCs on short-term debt to manage operational losses.

Patil pointed to comments made earlier by the oil minister, who had indicated that the combined under-recoveries on petrol, diesel, and domestic LPG sales were running at nearly Rs 1,000 crore per day.

Breaking down those numbers, Patil estimated that domestic LPG losses alone accounted for nearly Rs 400 crore daily, with under-recoveries on LPG cylinders standing at roughly Rs 670 per cylinder. The remaining Rs 600 crore per day, he explained, effectively reflected losses on petrol and diesel sales.

“It implies around Rs 14 per litre kind of a loss on the sale of petrol and diesel. Today, the government has passed on only Rs 3 per litre burden to consumers. So, a further price hike of Rs 11 per litre is required,” he said.

Gradual Hikes Seen as Inflation Management Strategy
Patil believes the government is deliberately opting for calibrated price increases rather than passing on the entire burden to consumers in one shot.

“We believe this is a calibrated and cautious move because the government also has to take care of the inflation part,” he said.

He explained that diesel price increases tend to have a broader cascading effect on transportation and logistics costs, which eventually feed into retail inflation.

“To our understanding, once transporters raise costs, they hardly come back to normal levels. So, any price hike on the diesel side is being approached very cautiously by the government,” Patil added.

The latest fuel revision follows a recent hike in CNG prices by Mumbai-based gas distributor Mahanagar Gas Limited, reinforcing expectations that energy price adjustments may continue in phases over the coming weeks.

Previous Windfall Helped Fund Expansion Plans
While consumers may question why fuel prices were not cut more aggressively when crude oil was trading closer to $60–70 per barrel in earlier years, Patil argued that OMCs had their own capital commitments to manage.

During FY24, FY25, and FY26, when crude prices were relatively lower, OMCs benefited from stronger marketing margins. However, those gains were partly deployed toward major capital expenditure programmes.

“If we look at their capex cycles, they are inclined towards building new refineries,” Patil said. “There is also diversification into renewable energy projects where initial returns are lower.”

According to him, retaining a portion of those profits helped companies fund long-term expansion and energy transition projects.

Still, he warned that the current environment remains highly uncertain and that OMC earnings are likely to remain under severe pressure in the near term.

“We are largely sure that in Q1 FY27, OMCs will be in the red. They are going to post losses in Q1 FY27,” he said.

Breakeven Still Some Distance Away
When asked about the breakeven level for OMCs with crude oil hovering around $110 per barrel, Patil reiterated that additional retail fuel hikes would be necessary to stabilise profitability.

“That is exactly what we discussed — around Rs 11 per litre price hikes in petrol and diesel can give them some relief from the under-recoveries,” he said.

For now, the government’s measured approach suggests that consumers could be facing a gradual series of fuel price increases rather than one sharp adjustment, as policymakers attempt to balance inflation concerns with the financial sustainability of the country’s oil retailers.