By absorbing record international crude prices, Indian Oil, HPCL, and BPCL have incurred their largest quarterly losses in years. According to persons familiar with the subject, India intends to pay approximately 20,000 crores ($2.5 billion) to state-run fuel merchants such as Indian Oil Corp. to partially compensate them for losses and keep cooking gas costs under control.

The oil ministry has requested compensation of 28,000 crores, but the finance ministry is only willing to pay approximately 200 billion in cash, according to people who asked not to be identified since the conversations are confidential. The conversations have progressed, but no final decision has been made, according to the sources.

By absorbing record international crude costs, the three largest state-run retailers, which together supply more than 90% of India’s petroleum products, have experienced the worst quarterly losses in years. While the giveaway may alleviate their suffering, it would put an additional burden on the government’s budgets, which are already stretched by fuel tax cuts and a greater fertilizer subsidy to combat rising inflationary pressures.

Shares of state-run retailers rose, with Hindustan Petroleum Corp. up 1.7%, Bharat Petroleum Corp. up 1.2%, and Indian Oil up 0.1% after sliding as much as 0.8% earlier in the day. Oil subsidies were set at 5,800 crores for the fiscal year ending March, while fertilizer subsidies were set at 1.05 trillion.

These fuel-retailing enterprises, which consume more than 85% of imported oil, benchmarked their fuels to international rates. These increased after a global recovery in demand coincided with reduced fuel-making capacity in the United States and fewer Russian exports. State-owned oil companies are required to acquire crude at worldwide rates and sell it locally in a price-sensitive market, whereas private operators, such as Reliance Industries Ltd., have the freedom to access stronger fuel export markets.

India imports

India imports over half of its liquefied petroleum gas, which is mostly used as cooking fuel. According to India’s Oil Minister Hardeep Singh Puri, the price of the Saudi contract price, the import benchmark for LPG in India, has grown 303% in the last two years, while the retail price in Delhi has increased by 28%.

Representatives from India’s finance and oil ministries both declined to comment. Since early April, the businesses have also kept gasoline and diesel pump prices low in order to slow the rate of inflation. Bharat Petroleum Chairman Arun Kumar Singh stated last month that the oil companies would demand some intervention, either through price rises or government compensation, to cover ongoing losses.

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