Indian fuel retailers buy diesel at reduced rates to protect consumers, adopt new pricing system

Indian fuel retailers have begun buying diesel from refiners at discounted rates to prevent any rise in pump prices, as global crude costs climb sharply amid Middle East tensions, industry sources said on Thursday.

Discounted pricing shifts burden to refiners

The revised mechanism links fuel pricing to India’s crude import cost while fixing a discount on the refinery transfer price (RTP). This means refiners receive less than the import-parity value of petrol and diesel, limiting the immediate pass-through of higher crude costs to consumers.

Global oil prices have risen from about USD 70 per barrel to over USD 100, but retail fuel prices in India have remained unchanged since April 2022. This has widened losses for oil marketing companies (OMCs), which are not compensated by the government for petrol and diesel under-recoveries. 

Integrated firms such as IOC, BPCL and HPCL can offset part of the impact across operations, but standalone refiners dependent on market-linked RTP are expected to face tighter margins.

India moved from import parity pricing to trade parity pricing in 2006 to protect refinery margins, even after fuel prices were deregulated. The current discount marks a shift, with refiners now absorbing part of the global price shock.