LPG Under-Recoveries Drop 35% in Q1 FY26 to ₹7,940 Crore on Price Hike and Lower Costs

State-owned oil marketing companies (OMCs) witnessed a significant reduction in their LPG under-recoveries during the first quarter of FY26. According to a report by Care Ratings, under-recoveries dropped 35% sequentially—from ₹12,110 crore in Q4FY25 to ₹7,940 crore in Q1FY26—primarily due to the ₹50 per cylinder price hike in April and easing sourcing costs.

OMCs had been facing high LPG under-recoveries of nearly ₹220 per cylinder in FY25, which have now moderated to ₹160 per cylinder in Q1FY26.

Price hike and sourcing cost reduction bring relief

The April 2025 retail price revision, where LPG prices were raised by ₹50 per cylinder, coupled with a decline in international sourcing costs, helped soften the burden.

LPG under-recoveries stood at ₹160 per cylinder in Q1, compared with ₹220 per cylinder previously.
Sequentially, this translated to a 35% reduction in financial losses for OMCs.

Despite the improvement, cumulative LPG under-recoveries still remain high, touching ₹49,210 crore by June 2025, compared to ₹41,270 crore in March 2025.

Government support and subsidy compensation

To partly offset the financial strain, the Cabinet had approved a ₹30,000 crore compensation package on August 8, 2025, for OMCs. This relief is to be released in 12 monthly tranches, offering stability amid fluctuating international prices.

In FY23, OMCs had already been compensated with ₹22,000 crore in subsidies for LPG under-recoveries, underscoring the recurring challenge of aligning domestic retail prices with global sourcing costs.

Impact of global Saudi contract price

The Saudi contract price (CP)—a benchmark for international LPG trade—has witnessed a steep correction in recent months.

From over $600 per metric tonne in March 2025, it fell to $506/mt in August 2025.
This decline was driven by geopolitical trade tensions, rising global production, weak demand, and seasonal slowdown after winter.

The fall in global prices is expected to further ease sourcing costs for Indian OMCs, potentially reducing under-recoveries in the upcoming quarters.

Outlook for LPG under-recoveries

The moderation in sourcing costs along with partial retail price adjustments has brought some relief. However, under-recoveries continue to weigh heavily, and cumulative losses remain elevated. Going forward, the trajectory of LPG under-recoveries will depend on: