IOC Estimates LPG Under-Recovery Decline If Saudi Crude Prices Stay Low

State-run oil marketing companies (OMCs) are witnessing a reduction in losses from subsidised domestic LPG sales as international prices soften, with Indian Oil Corporation (IOC) expecting under-recoveries to nearly halve to around Rs 250 per cylinder in the current quarter if Saudi Arabian LPG prices remain stable. The decline in global LPG prices has provided some relief to IOC, Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd. (HPCL), which have been facing financial pressure from selling cooking gas below cost.

During post-earnings investor calls, the three public sector oil companies indicated that LPG losses had reduced to around Rs 475-490 per cylinder in July, compared with higher levels in earlier months. The improvement came after Saudi Arabia’s benchmark LPG contract prices eased, reducing the gap between domestic retail prices and international costs.

The outlook improved further after Saudi Arabia set its August LPG Contract Price at $592 per tonne. Based on current global price trends, oil companies estimate that under-recoveries could decline to nearly Rs 210 per cylinder. IOC said LPG under-recoveries could average around Rs 250 per cylinder during the July-September quarter if Saudi contract prices remain at present levels.

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However, IOC cautioned that any sudden rise in international LPG prices could reverse the improvement and increase losses again. The company highlighted that the profitability of oil marketing firms remains closely linked to global energy markets, particularly benchmark LPG prices and crude oil movements.

Despite the recent improvement, OMCs continue to carry a significant accumulated financial burden from LPG under-recoveries. HPCL reported that its uncompensated LPG loss buffer increased to Rs 16,400 crore by the end of June. BPCL’s outstanding LPG under-recovery burden stood at Rs 15,800 crore despite receiving around Rs 19,000 crore in government compensation.

IOC continues to have the highest exposure among the three companies, with its LPG under-recovery buffer rising to Rs 29,700 crore by June-end despite government support. The companies have indicated that while softer international LPG prices could improve near-term earnings, sustained recovery will depend on global price stability and timely compensation mechanisms for selling domestic cooking gas below market rates.

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