The government confirmed this week what oil marketing company (OMC) investors feared: there will be no financial support for fuel retailers' losses on petrol, diesel, and ATF. With crude oil prices swinging between $65–90 per barrel over the past year — driven by OPEC+ uncertainty, the UAE's exit from OPEC, and Middle East flare-ups — this decision has serious implications for India's largest fuel retailers.

But while the market fixates on OMC pain, a quieter story is unfolding. City gas distribution companies are thriving precisely because of the dynamics hurting traditional fuel retailers.

The OMC Squeeze: Margins in Free Fall

Gross Refining Margins (GRM) — the gap between crude oil cost and refined product prices — have collapsed across the board. This is the single most important number for oil companies, and it's telling a brutal story.

Indian Oil Corporation (IOC), India's largest oil company, saw its GRM plunge from $19.52/barrel in FY23 to $12.05/barrel in FY24, and then to just $4.08/barrel in the first half of FY25, per its H1 FY25 quarterly results. The core GRM, stripping out inventory effects, was an even more alarming $2.97/barrel. IOC also disclosed a cumulative negative LPG buffer of ₹8,870 crore as of September 2024 — meaning the company is absorbing massive losses on household cooking gas that consumers never see at the pump. In FY23, the government provided a one-time grant of ₹10,801 crore to cover these LPG under-recoveries. That lifeline is now explicitly off the table. Bharat Petroleum (BPCL) tells the same story. Its GRM fell from $14.72/barrel in the first nine months of FY24 to just $5.95/barrel in the same period of FY25, per its Q3 FY25 results filed in January 2025. The real pain shows in the operating margins: they collapsed from 10.54% to just 2.75% year-on-year in Q1 FY25, while net profit margins fell from 8.23% to 2.35%. BPCL also carries a negative LPG buffer of ₹2,015 crore. Hindustan Petroleum (HPCL) saw its GRM drop from $9.84/barrel in the first nine months of FY24 to $4.73/barrel in the same period of FY25, per its January 2025 quarterly filing. Like IOC, HPCL received a ₹5,617 crore government grant in FY23 for LPG losses — support the government has now ruled out repeating.

The sharpest decline hit Mangalore Refinery and Petrochemicals (MRPL). Despite revenue growing slightly to ₹1,09,239 crore in FY25, net profit collapsed 99% — from ₹3,596 crore in FY24 to just ₹51 crore, per its FY25 annual report. Revenue went up, but virtually all profitability evaporated.

The Second-Order Bet: City Gas Is Quietly Winning

Here's what the OMC headlines miss. While fuel retailers struggle with regulated prices they can't raise and volatile crude they can't control, city gas distribution companies operate under a fundamentally different regime.

GAIL, India's dominant gas infrastructure company, controls approximately 65% of the country's gas transmission network. Per its FY24 annual report, gas transmission volumes reached an all-time high of 120.46 MMSCMD, up 12% year-on-year. Revenue from gas transmission surged 54.5% to ₹10,292 crore. The company also holds a ~48% share of India's domestic gas market. Most importantly, net profit jumped 76% to ₹9,899 crore in FY24 (from ₹5,616 crore in FY23), with operating profit margins expanding from 3.20% to 7.71%. GAIL benefits from rising gas volumes regardless of where crude oil prices go. Indraprastha Gas (IGL), Delhi's primary CNG and piped gas supplier, achieved its highest-ever sales volume of 3,084 mmscm (8.43 mmscmd) in FY24, per its annual report. PNG domestic sales surged 15.3% — the best growth in five years. With 882 CNG stations serving approximately 18 lakh vehicles and 27 lakh PNG household connections, the company's consolidated total comprehensive income rose 21% to ₹1,980 crore in FY24, up from ₹1,640 crore the prior year. Mahanagar Gas (MGL), Mumbai's city gas operator, reported its highest-ever net sales revenue of ₹6,921 crore and highest-ever EBITDA of ₹1,184 crore, maintaining a Return on Net Worth of approximately 20%, per its FY23 annual report. The company has delivered a revenue CAGR of ~23% since FY19 — through multiple crude oil cycles.

The structural advantage is clear: the government's revised APM gas pricing formula links domestic gas prices to the Indian Crude Basket with a ceiling, creating price stability that OMCs can only dream of. As Mahanagar Gas noted in its annual report, the new pricing policy has "reduced the volatility" for city gas operators. And every time petrol or diesel prices climb, CNG becomes an even more attractive alternative for consumers — driving organic volume growth.

What Retail Investors Should Do

If you hold OMC stocks for their dividends, recognize that those payouts are under pressure when refining margins sit below $5/barrel and the government explicitly won't backstop losses. The investment case for IOC, BPCL, and HPCL now depends almost entirely on crude oil cooperating — something no one can predict.

City gas stocks like GAIL, IGL, and MGL carry premium valuations, but they offer something the OMCs cannot: structural tailwinds from India's shift toward cleaner fuels, government-backed pricing stability, and growing consumer adoption of CNG. Before buying, check whether these tailwinds are already priced in — but understand that the growth runway is long and much less dependent on commodity luck.

The next time you see a headline about oil prices squeezing fuel retailers, look past the obvious losers and ask: who is quietly winning on the other side?

Data sourced from company filings on NSE via Xaro.