Oil marketers' FY26 operating profit likely to surge over 50%: Crisil

Oil marketing companies (OMCs) are poised for a sharp rebound, with operating profits expected to surge more than 50 per cent to USD 18-20 per barrel this fiscal year, driven by stronger marketing margins amid stable retail fuel prices and supportive crude oil dynamics, Crisil Ratings said on Friday.

OMCs earn from refining (gross refining margins or GRMs) and from marketing of petrol, diesel, and other fuels.

"This fiscal, the improvement in marketing margin will more than offset a moderation in refining margin owing to slow growth in global demand for fossil fuels as the world transitions towards cleaner energy sources," Crisil Ratings said in a note.

Healthy profitability is set to bolster cash accruals to Rs 75,000-80,000 crore, compared with about Rs 55,000 crore last fiscal year. The stronger cash flow will support the sector's planned Rs 90,000 crore capex, largely focused on brownfield expansion and domestic demand-driven projects.

Crude oil prices are expected to soften to USD 65-67 per barrel, keeping GRMs modest at USD 4-6 per barrel.

In contrast, marketing margins are projected to jump to roughly USD 14 per barrel (about Rs 8 per litre), lifting overall operating margins.

Over the past five fiscal years, geopolitical uncertainties have impacted oil prices, while retail fuel prices have been range-bound.

As a result, OMCs' operating profit dipped to as low as USD 0.13 per barrel in FY23, when oil prices averaged USD 93 per barrel, and peaked at about USD 20 per barrel in FY24, when oil prices softened to USD 83 per barrel.

While annual margins have fluctuated, they have ultimately normalised to about USD 11 per barrel.

In FY25 (year ended March 31, 2025), OMCs' operating profit of USD 12 per barrel was in line with the decadal industry average. With crude oil prices averaging USD 79 per barrel, GRM was USD 6 per barrel and so was marketing margin (Rs 3 per litre), it said.

"This fiscal, crude price, though volatile, are likely to soften to USD 65-67 per barrel. GRM is expected to remain modest at USD 4-6 per barrel as moderate global demand and energy transition trends weigh on refining spreads. Amid this, unchanged retail fuel prices will boost marketing margin to USD 14 per barrel (Rs 8 per litre), resulting in overall margin improving more than 50 per cent to USD 18-20 per barrel," said Anuj Sethi, Senior Director, Crisil Ratings.

With profitability strengthening, OMCs' leverage is set to improve, with debt-to-Ebitda likely easing to 2.2x from 3.6x last year.

"Capex momentum continues, but healthier earnings will limit reliance on external debt," said Joanne Gonsalves, Associate Director, adding that credit profiles remain supported by the sector's strategic role and government ownership.

Analysts cautioned that any major supply cuts or geopolitical escalation could disrupt crude prices and alter the outlook.