India's three state-owned oil marketing companies, Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum, are facing a potential full-year profit wipeout in FY26, after crude oil prices spiked and LPG under-recoveries widened sharply in the first quarter.

The combined estimated loss for OMCs in Q1 FY26 stands at roughly Rs 1.2 lakh crore, a figure large enough to erase the sector's earnings for the entire financial year if conditions do not improve. Under-recovery refers to the gap between what it costs the companies to supply fuel and what they are allowed to charge consumers, a gap that OMCs absorb directly when retail prices are not adjusted upward.

Why LPG Is the Pressure Point

Cooking gas, or LPG, sold at administered prices is the main source of stress. When crude rises, the cost of producing and importing LPG climbs, but retail cylinder prices remain fixed. Each cylinder sold below cost widens the under-recovery, and with crude prices elevated, the cumulative hit across millions of subsidised cylinders adds up fast. Unlike petrol and diesel, where price revisions happen more readily, LPG pricing is politically sensitive and tends to stay frozen for longer.

The Centre has signalled it will not raise fuel prices in the near term, which removes the most direct route OMCs have to protect their margins. Without a price hike or a compensating fall in crude, the companies must absorb the cost difference on their own books.

What This Means for OMC Finances and Investors

OMC shares are under pressure because the earnings outlook has deteriorated quickly. These are dividend-paying, government-backed companies that many institutional and retail investors hold for stable returns. A profit wipeout would not just hurt dividends, it would also strain the companies' ability to fund capital expenditure, including ongoing refinery upgrades and the energy transition investments the government expects them to make.

The government could step in with a subsidy transfer or allow a partial price correction, as it has done in past cycles. But neither has been announced, and the absence of any such signal is what is keeping investor sentiment cautious. Crude price direction over the next few months will be the main variable, a sustained fall in global oil prices would ease under-recoveries without requiring a politically difficult price hike at the pump.

For now, the sector is in a holding pattern: costs are high, retail prices are fixed, and relief from either direction, government support or cheaper crude, has not materialised. The Q2 results will show whether Q1 was a temporary spike or the start of a sustained squeeze.