Indian Oil’s LPG Under-Recoveries: Why a Near-Tripled Profit Still Leaves INR325bn ($3.43bn) Unpaid

LPG under-recoveries now exceed half a year’s profit

On a standalone basis, IOCL earned INR216.3bn ($2.28bn) in the quarter, after a loss of INR26.6bn ($281mn) in Q1 FY27 (April-June 2026). As a result, it made ~INR190bn ($2.0bn) in the half-year, on our estimate. By contrast, its unpaid LPG buffer is ~70% larger.

Moreover, the buffer is already net of support. IOCL booked INR72.4bn ($764mn) of government compensation as revenue for April-September 2026, or ~INR12.1bn ($127mn) a month. The other two state retailers also carry large sums: INR173bn ($1.83bn) at BPCL and INR180bn ($1.90bn) at HPCL. Together, the three hold ~INR679bn ($7.16bn) of LPG under-recoveries, on our estimate.

Why LPG under-recoveries are rising again

At first, the loss per cylinder fell in Q2 FY27 as Saudi contract prices eased. At BPCL, it averaged ~INR290 ($3.06) per cylinder, against INR507 ($5.35) in Q1 FY27. However, the trend has turned. BPCL put the loss at INR245 ($2.59) in October 2026 and expects INR328 ($3.46) in November 2026. Similarly, HPCL gave almost the same figures.

Meanwhile, the support is running out. The current scheme pays 12 monthly instalments that began in November 2025, and BPCL said it ends in October 2026. The companies have asked the oil ministry for more, but the size and timing of any new support are unknown.

The inventory risk cuts the other way

Notably, IOCL said its profit came largely from a “temporary decline in crude oil prices from mid-June to mid-August”. At the same time, it warned that inventory losses could hurt profits if crude falls as West Asia returns to normal. In effect, IOCL holds crude bought at high prices, and a sharp fall would cut the value of those stocks.

For now, prices are high. Brent settled at $117.64 on 30 October 2026, and BPCL said Dated Brent was ~$125-127 a barrel. Therefore, IOCL faces a squeeze either way. If crude stays high, cooking gas and retail fuel losses grow. But if a peace deal pulls crude down, inventory losses follow instead.

What it means for India’s state fuel retailers

In our view, IOCL’s Q2 FY27 profit reflects price timing, not a new level of earnings. For example, HPCL reported a gross refining margin of $32.15 a barrel in the quarter. Even so, it made a standalone loss of INR80.4bn ($849mn) in the half-year. IOCL, however, did not disclose its margin. Above all, policy is the key variable, since a fresh compensation package would ease the strain on all three. For the wider cost to India, see our analysis of the oil price shock.

What to watch next

• A new LPG compensation package from the oil ministry for 2026-27.
• LPG under-recoveries in November 2026, which BPCL expects at INR328 per cylinder.
• Q3 FY27 (October-December 2026) results, for inventory gains or losses as crude moves.

For the news, read our report on the Indian Oil Q2 FY27 results.