- How OMC marketing margins work in India’s price build-up
- Two rules-of-thumb: $/bbl and USD/INR sensitivities (₹/L)
- Scenario table (WTI × USD/INR): implied cost change vs a $70/₹88 baseline
- CAD math: what $63 implies vs $70
- What to watch: policy levers, inventory lags, and risks
The short
- Softer crude = relief: At ~$63 WTI and ~₹88/$, the implied product cost is roughly ₹3.9/L lower than a $70/₹88 baseline (illustrative, before refining, freight, and margins).
- Rules-of-thumb: Every $1/bbl moves product cost by ~₹0.55/L (at ₹88/$). Every ₹1 move in USD/INR (at $63/bbl) changes cost by ~₹0.40/L.
- CAD sensitivity: A $10/bbl swing in oil can shift India’s CAD by ~$15B annually; from $70 → $63 implies an improvement of ~$10–11B (rule-of-thumb).
Price build-up & margin mechanics
Retail fuel uses a trade parity price (TPP) concept (import/export parity), to which dealer commission and central/state taxes are added. OMC marketing margin is the residual between the RSP (net of taxes) and the TPP plus distribution/operating costs. When global product prices and crude soften but pump prices stay unchanged, margins expand; when prices spike or the rupee weakens, margins compress.
Remember Taxes are a large share of final pump prices; hence a big cost move (₹/L) does not necessarily translate to a visible RSP change immediately.
Rules-of-thumb you can use
- $ sensitivity: ~₹0.55 per litre for each $1/bbl move (at ₹88/$). So ±$5 ≈ ±₹2.75/L; ±$10 ≈ ±₹5.5/L.
- FX sensitivity: ~₹0.40 per litre for each ₹1 move in USD/INR (at $63/bbl).
Method: Cost per litre ≈ (USD/INR × $/bbl) ÷ 159. Derivatives give the per-unit sensitivities. This is simplified, pre-refining/marketing costs and ignores quality spreads.
Scenario table — change vs $70 / ₹88 baseline
| WTI ($/bbl) | USD/INR | Indicative Δ cost (₹/L) | What it means if pump prices are steady |
|---|---|---|---|
| 60 | 86 | -6.29 | Headroom ↑ (margins expand) |
| 60 | 88 | -5.53 | Headroom ↑ |
| 60 | 90 | -4.78 | Headroom ↑ |
| 63 | 86 | -4.67 | Headroom ↑ |
| 63 | 88 | -3.87 | Headroom ↑ |
| 63 | 90 | -3.08 | Headroom ↑ |
| 70 | 86 | -0.88 | Slight relief vs baseline |
| 70 | 88 | 0.00 | Baseline |
| 70 | 90 | +0.88 | Headroom ↓ (margins compress) |
| 75 | 88 | +2.77 | Headroom ↓ |
Δ cost is illustrative change in underlying product cost before refining/operating costs and taxes. Realised margins also depend on inventory lags, product crack spreads, and OMC pricing decisions.
CAD math — quick scenarios
| Oil ($/bbl) | CAD shift vs $70 baseline | Rule-of-thumb |
|---|---|---|
| 60 | ~+$15B (narrower deficit) | $10 → ~$15B change |
| 63 | ~+$10–11B | $7 → ~$10.5B |
| 70 | ~$0B | Baseline |
| 75 | ~–$7.5B (wider deficit) | $5 → ~$7.5B |
Note: Actual CAD also depends on volumes, non-oil trade, services surplus, and gold imports.
What to watch
Policy levers
Excise/VAT tweaks, dealer commission revisions, or a calibrated pump-price change can re-allocate margin headroom.
Inventory & cracks
OMC P&L reflects lagged stocks and product cracks (petrol/diesel). Short spells of low crude may not fully flow through.
FX & differentials
USD/INR path and regional spreads (e.g., Russian/ME grades vs benchmarks) shift landed costs independent of WTI/Brent.
Festive season optics
Near festivals, OMCs sometimes pass relief to consumers; outside windows, they may retain headroom to buffer volatility.
FAQ
- Will pump prices be cut? If softer crude persists and FX cooperates, OMCs historically gained headroom of ~₹2–3/L (context-dependent). Cuts are discretionary.
- Is $63 the Indian basket? This piece uses WTI as a simple marker; Indian basket and product prices can differ by quality and crack spreads.