Why Investors Are Losing Confidence in Oil Stocks Despite Higher Fuel Prices

India’s state-run oil marketing companies (OMCs) finally received a long-awaited petrol and diesel price hike after holding fuel prices largely unchanged since 2022. But instead of cheering the move, investors aggressively sold oil stocks.

Shares of Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL) fell nearly 3% even after petrol and diesel prices were increased by up to ₹3 per litre. Investors had expected a much larger increase to offset mounting losses caused by surging global crude oil prices.

The market reaction highlighted growing concerns that the fuel price increase is simply too small to protect oil marketing companies from worsening financial pressure. With Brent crude remaining above the $100-per-barrel mark and geopolitical tensions in West Asia continuing, investors are increasingly worried that OMCs may report another quarter of heavy losses.

Why the ₹3 Fuel Price Hike Failed to Impress Investors

The latest petrol and diesel price hike was the first major retail fuel increase since 2022. However, analysts believe the ₹3-per-litre increase covers only a small portion of the actual losses being faced by oil marketing companies.

At current crude oil prices, experts estimate OMCs continue losing hundreds of crores daily despite the price hike.

Estimated OMC Under-Recoveries

Factor	Estimate
Estimated Under-Recovery per Litre	₹17–18
Daily OMC Losses	Around ₹500 crore
Estimated Quarterly Losses	₹57,000–58,000 crore
Fuel Price Hike Announced	₹3 per litre

Analysts believe a much larger fuel price hike would have been necessary to meaningfully improve profitability.

According to Emkay Global’s estimates, even a ₹10-per-litre increase would recover only around 50% of current under-recoveries at crude prices of $105–110 per barrel.

This explains why investors reacted negatively despite the price increase announcement.

Rising Crude Oil Prices Are Crushing OMC Margins

The biggest problem for Indian oil marketing companies is the sharp increase in global crude oil prices.

Brent crude has surged dramatically over recent months due to geopolitical tensions involving the United States, Israel, and Iran. Concerns surrounding the Strait of Hormuz — one of the world’s most critical oil shipping routes — have further increased volatility in energy markets.

Brent Crude Oil Movement

Period	Brent Crude Price
February 2026	Around $69/barrel
Peak During Crisis	Above $120/barrel
Current Levels	Around $107/barrel

Oil marketing companies purchase crude oil at international prices but face political and inflation-related limitations when increasing retail fuel prices domestically.

As crude oil prices rise rapidly while retail fuel prices remain relatively controlled, OMC marketing margins shrink sharply.

This directly impacts:

• Profitability
• Cash flows
• Balance sheet strength
• Investor confidence

Why Investors Are Selling HPCL, BPCL, and IOC Shares

Investors are worried that the current fuel price hike may not be enough to prevent large losses during the June quarter.

The market is concerned about three major risks:

1. Continued Under-Recoveries

OMCs may continue selling fuel below economically viable pricing levels if crude oil prices remain elevated.

2. Government Pricing Uncertainty

Investors are uncertain whether the government will allow further fuel price hikes.

3. Inflation Pressure

Large fuel price increases could increase inflation and hurt consumption demand across the economy.

This creates a difficult situation where:

• Small hikes hurt OMC profitability
• Large hikes hurt inflation and consumers

As a result, investors fear that oil marketing companies may remain trapped between political pressure and rising global oil prices.

Inflation Risks Are Limiting Further Fuel Price Hikes

One of the biggest reasons investors remain nervous is inflation risk.

Economists warn that significant increases in petrol and diesel prices could sharply push up India’s Consumer Price Index (CPI) inflation.

Estimated Inflation Impact

Fuel Price Increase	Estimated CPI Impact
5% Fuel Price Increase	35–40 basis points
10% Fuel Price Increase	Around 48 basis points direct impact
Second-Round Inflation Impact	Additional 25 basis points

Higher fuel prices usually increase:

• Transportation costs
• Logistics expenses
• Food prices
• Manufacturing costs
• Household expenses

This creates broader inflationary pressure across the economy.

The Reserve Bank of India (RBI) is already closely monitoring inflation trends, which means aggressive fuel price hikes become politically and economically difficult.

Why Energy Stocks Are Losing Market Confidence

The recent sell-off in HPCL, BPCL, and other OMC stocks reflects declining investor confidence in the sector’s earnings visibility.

Investors are increasingly worried about:

• Weak marketing margins
• Government intervention risks
• Volatile crude oil prices
• Inflation pressure
• Delayed pricing adjustments

The market now believes OMC profitability depends less on operational efficiency and more on government policy decisions regarding fuel pricing.

This uncertainty usually reduces investor appetite for state-run energy stocks.

What Analysts Are Saying About OMC Stocks

Several analysts believe more fuel price hikes may eventually become unavoidable if crude oil prices remain above $100 per barrel.

Analyst Expectations

Analyst View	Key Observation
ICRA	OMCs losing around ₹500 crore daily
Emkay Global	₹10/litre hike needed for partial recovery
Religare Broking	Elevated crude oil hurting margins
Elixir Equities	Government may need tougher pricing action

Some analysts believe petrol and diesel prices may eventually need to rise by ₹18–20 per litre over several months if crude oil prices remain elevated for an extended period.

However, markets remain uncertain whether the government will allow such steep increases.

Government’s Energy Security Challenge

The current situation also highlights India’s larger energy security challenge.

India imports a significant portion of its crude oil requirements. When global oil prices rise sharply, the country faces pressure on:

• Fuel prices
• Inflation
• Fiscal balances
• Currency stability
• Corporate profitability

The government now faces a difficult balancing act between:

• Protecting consumers from inflation
• Maintaining financial health of OMCs
• Supporting economic growth
• Preserving energy security

This uncertainty continues weighing heavily on oil sector stocks.

Conclusion

The recent ₹3-per-litre fuel price hike failed to restore investor confidence in India’s oil marketing companies because markets believe the increase is far too small to offset rising crude oil costs.

With Brent crude remaining above $100 per barrel, under-recoveries continuing, and geopolitical tensions in West Asia showing little sign of easing, investors fear another difficult quarter for HPCL, BPCL, IOC, and other state-run fuel retailers.

The core concern is no longer just fuel pricing — it is the growing uncertainty around profitability, government intervention, inflation risks, and the long-term financial sustainability of India’s oil marketing companies during periods of elevated crude oil prices.

Why did oil stocks fall despite the petrol and diesel price hike?

Oil stocks such as HPCL and BPCL fell because investors believe the ₹3-per-litre fuel price hike is too small to offset the heavy losses caused by rising global crude oil prices.

Which oil marketing company stocks declined after the fuel price hike?

Shares of major state-run oil marketing companies including:

• HPCL
• BPCL
• IOC

came under selling pressure after the announcement.

How much are OMCs estimated to lose daily at current crude prices?

According to ICRA estimates, oil marketing companies may still be losing around ₹500 crore per day at crude oil prices of $105–110 per barrel, even after the latest fuel price hike.

Why are crude oil prices rising globally?

Crude oil prices have increased sharply due to geopolitical tensions involving the US, Israel, and Iran, along with concerns surrounding oil supply routes such as the Strait of Hormuz.

What are under-recoveries in oil marketing companies?

Under-recoveries refer to losses incurred when OMCs sell petrol, diesel, or LPG below economically sustainable prices due to controlled retail pricing.

How much fuel price hike do analysts believe is needed?

Some analysts estimate that petrol and diesel prices may need to rise by ₹10 per litre initially, while others suggest hikes of ₹18–20 per litre may eventually be required if crude oil prices remain elevated.

Why can’t the government sharply increase fuel prices immediately?

Large fuel price hikes can increase inflation, transportation costs, logistics expenses, and household spending, which may negatively affect economic growth and consumer demand.

How does rising crude oil impact OMC profitability?

Higher crude oil prices increase input costs for oil marketing companies. If retail fuel prices are not increased proportionately, company margins and profitability decline significantly.

What is Brent crude currently trading at?

Brent crude oil is currently trading around the $107-per-barrel mark after recently crossing $120 during heightened geopolitical tensions.

Why are investors worried about OMC earnings?

Investors are concerned about:

• Weak fuel marketing margins
• Government intervention risks
• Rising crude oil costs
• Inflation pressures
• Possible large quarterly losses