LPG under-recoveries hit OMCs hard in Q1FY27 after Hormuz supply shock
Synopsis
A single geopolitical shock — the closure of the Strait of Hormuz — sent Saudi LPG prices soaring nearly 50% in one quarter, saddling India's OMCs with ₹61,900 crore in cumulative under-recoveries by June 2026. Even a ₹89 per cylinder price hike and a pivot to US supplies couldn't plug the gap. The real question now is whether Q2FY27's projected 40% recovery is durable or just a breather.
Key Takeaways
India's major OMCs reported combined LPG under-recoveries of ₹13,700 crore in Q1FY27 , net of ₹7,500 crore government compensation.
Cumulative LPG under-recoveries rose to ₹61,900 crore by 30 June 2026 , from ₹48,200 crore on 31 March 2026 .
The Saudi Contract Price surged from $530/MT in FY26 to $785/MT in Q1FY27 — a near- 50% jump — driven by the West Asia conflict and Strait of Hormuz closure.
India imports roughly 60% of its LPG and diversified sourcing to the United States , but at significantly higher landed costs.
Domestic LPG prices were raised by ₹89 per 14.2 kg cylinder to partially offset procurement costs.
Under-recoveries are expected to decline by approximately 40% in Q2FY27 as Saudi CP eases to $592–$632/MT .
India's three major oil marketing companies (OMCs) saw their earnings weaken sharply in Q1FY27 after a period of strong profitability in FY26, as soaring LPG under-recoveries eroded refining gains, according to a new report by CareEdge Ratings. The combined under-recovery burden reached approximately ₹13,700 crore in the quarter, even after accounting for a government compensation of ₹7,500 crore.
Scale of the Under-Recovery Crisis
Total LPG under-recoveries for the three OMCs climbed to roughly ₹61,900 crore by 30 June 2026, up from ₹48,200 crore as of 31 March 2026 — a rise of over ₹13,700 crore in a single quarter. The CareEdge Ratings report attributed this surge to unprecedented disruptions in the global LPG supply chain triggered by the West Asia conflict and the closure of the Strait of Hormuz, which sharply widened the gap between procurement costs and the subsidised retail price at which LPG is sold domestically.
The international benchmark Saudi Contract Price (Saudi CP) jumped from an average of $530 per metric tonne (MT) in FY26 to $785 per MT in Q1FY27 — a near-50% spike in a single quarter. This directly inflated the cost of LPG imports for India, which sources approximately 60% of its LPG requirements from overseas markets.
India's Supply Diversification and Its Costs
Faced with West Asian supply disruptions, India rapidly pivoted its LPG sourcing toward the United States and other alternative markets, according to the CareEdge report. While this diversification helped maintain supply continuity, it came at a significantly higher landed cost, compounding the under-recovery burden on OMCs already selling below market-determined prices.
To partially offset the procurement cost surge, domestic LPG cylinder prices were raised by ₹89 per 14.2 kg cylinder during Q1FY27. However, the price hike was insufficient to bridge the wide gap between import costs and retail prices, leaving OMCs to absorb the remainder.
Gross Refining Margins: A Silver Lining Dimmed
The report noted that gross refining margins (GRMs) did improve during the quarter, offering some operational relief to OMCs. However, the scale of LPG under-recoveries was large enough to offset these gains, resulting in a net weakening of overall profitability. This comes amid a broader pattern where OMC earnings have oscillated sharply with global commodity cycles — a structural vulnerability that policy-controlled retail prices tend to amplify.
Outlook for Q2FY27
There are early signs of relief. The Saudi CP price has since moderated to $592 per MT in July 2026 and edged up to $632 per MT in August 2026, reflecting a relative easing of supply chain pressures. On the back of this decline, CareEdge Ratings expects LPG under-recoveries to fall by roughly 40% sequentially in Q2FY27, offering a meaningful earnings recovery for the sector — provided global supply conditions remain stable.
Point of View
But the vulnerability it exposed — a 60% import dependence combined with politically constrained retail prices — is not. The ₹89 per cylinder hike absorbed only a fraction of the cost surge, and the ₹7,500 crore government compensation covered barely half the net under-recovery. The projected 40% Q2 improvement is welcome, but it rests entirely on Saudi CP staying soft. If West Asian tensions re-escalate, the same trap springs again. India's energy pricing policy needs a more dynamic pass-through mechanism; the current model socialises risk onto OMC balance sheets and, ultimately, the public exchequer.
NationPress
17 Aug 2026
Frequently Asked Questions
What are LPG under-recoveries and why do they matter for OMCs?
LPG under-recoveries occur when oil marketing companies sell LPG cylinders below the market-determined price, absorbing the difference as a loss. In Q1FY27, India's three major OMCs faced combined net under-recoveries of approximately ₹13,700 crore, which eroded profitability despite improved gross refining margins.
What caused the spike in LPG under-recoveries in Q1FY27?
The primary cause was a near-50% surge in the Saudi Contract Price — the international LPG benchmark — from $530/MT in FY26 to $785/MT in Q1FY27, triggered by the West Asia conflict and the closure of the Strait of Hormuz. India, which imports about 60% of its LPG, faced sharply higher procurement costs that retail prices did not fully reflect.
How did India respond to the LPG supply disruption?
India rapidly diversified LPG sourcing away from West Asian suppliers toward the United States and other markets to maintain supply. However, this came at significantly higher landed costs. Domestic LPG cylinder prices were also raised by ₹89 per 14.2 kg cylinder to partially offset the procurement surge.
When are LPG under-recoveries expected to ease?
CareEdge Ratings expects LPG under-recoveries to fall by roughly 40% sequentially in Q2FY27, following a moderation in the Saudi Contract Price to $592/MT in July 2026 and $632/MT in August 2026, reflecting relative easing of global supply chain pressures.
What was the total cumulative LPG under-recovery burden by June 2026?
Total LPG under-recoveries for the three major OMCs reached approximately ₹61,900 crore by 30 June 2026, rising from ₹48,200 crore as of 31 March 2026 — an increase of over ₹13,700 crore in a single quarter.
