Commercial cylinder became costlier by Rs 993. But, the prices of LPG cylinders and petrol and diesel did not increase. At first glance this seems like relief, but the real story is of pent-up pressure. The cost of petroleum products has increased in the market and the burden of losses on oil companies is increasing. In such a situation, the big challenge before the government is that for how long can the common consumer be saved?
The problem is that the gap between international market and domestic prices has now become huge. According to rating agency ICRA, if crude oil remains in the range of $ 120-125 per barrel, then the marketing margin of oil companies on petrol is negative by around Rs 14 per liter and on diesel by Rs 18 per liter. The pressure on domestic LPG is also intense. The agency estimates that if the current under-recovery continues, the under-recovery of oil companies on domestic LPG could reach Rs 80,000 crore in FY 2026-27.
This figure shows the difficulty of the government. There is a provision of Rs 11,085 crore for LPG subsidy in the budget of 2026-27. This includes Rs 9,200 crore for LPG connections to poor families and Rs 1,500 crore for direct benefit transfer under the initiative. If LPG under-recovery goes around Rs 80,000 crore, it will be a burden many times larger than the current budget provision.
The government has already compensated: This is not the first time that oil companies have paid the price of saving customers. In August 2025, the Cabinet had approved compensation of Rs 30,000 crore to Indian Oil, Bharat Petroleum and Hindustan Petroleum to compensate for the losses on domestic LPG.
Pressure is not limited to just companies: Pressure is not limited to just oil companies. ICRA has estimated the fertilizer subsidy to reach Rs 2.05 to Rs 2.25 lakh crore in 2026-27, while there is a provision of Rs 1.71 lakh crore in the budget. This means that expensive energy is affecting government expenditure, company margins and public pockets… all three.
Government has three ways
The story is similar in petrol and diesel also. According to government sources, the possibility of increase in prices of petrol and diesel in the near future cannot be ruled out. Retail prices are almost stable from April, 2022. Meanwhile, crude oil rose to $126 per barrel this week and remained above $110 even after softening. In Delhi, petrol is priced at Rs 94.77 a liter and diesel at Rs 87.67 a litre. The government now has three options-
First: Oil companies should be allowed to bear losses.
Second: Compensation should be given again from the budget.
Third: Prices should be increased gradually.
The first route will weaken the balance sheets of oil marketing companies. The second one will increase the fiscal burden and the third one will lead to inflation on the common man.