Crude slips to 3-month low; INR weakness seen pressuring OMCs, CGDs: Nomura

Crude oil prices dropped to their lowest in three months last week amid rising OPEC+ supply prospects and refinery maintenance season, even as a weaker rupee threatens to weigh on the earnings of India’s downstream fuel retailers and city gas distributors (CGDs), Nomura said in its latest India Oil & Gas report dated September 17.

 

Brent crude slipped to $66.3 per barrel, with analysts attributing the decline to expectations of higher output from the producer cartel OPEC+ alongside seasonal refinery outages. Despite the softer crude, benchmark refining margins (GRMs) ticked higher by 8 per cent week-on-week (W-o-W) to $4.4/bbl, driven by stronger spreads in gasoline, diesel and jet fuel.

 

Meanwhile, liquefied natural gas (LNG) prices held steady. Spot JKM LNG rose marginally to $11.3/mmbtu, though quarter-to-date in Q2FY26, prices are down 3 per cent sequentially. In petrochemicals, Nomura noted polymer spreads were largely flat last week, except for polypropylene, though quarter-to-date margins are down 1-7 per cent compared with Q1FY26.

Rupee weakness adds pressure

 

Nomura analysts highlighted the Indian rupee’s depreciation as a key risk for downstream companies. The currency has weakened around 3 per cent over the past three months, with Q2FY26 averaging a 1.7 per cent sequential decline.

 

“For CGDs, we estimate a ₹0.30-0.35/scm impact on unit Ebitda for every 1 per cent depreciation in INR/USD, implying a 3-5 per cent hit on margins. Mahanagar Gas (MGL) is relatively better placed due to its higher base margin compared to peers,” the brokerage said.

 

For oil marketing companies (OMCs), the sensitivity is even sharper. “We estimate a marketing margin impact of about ₹0.50 per litre for every 1 per cent depreciation, translating into a 6-8 per cent hit to group Ebitda. Hindustan Petroleum (HPCL), with its larger reliance on the marketing business, is the most exposed among OMCs,” Nomura said.

Margins, LPG recovery trend

 

According to Nomura, blended marketing margins for OMCs slipped 11 per cent to ₹6.3/litre for the week ended 12 September from ₹7.1 a week earlier. So far in Q2FY26, marketing margins have averaged ₹6.8/litre, sharply lower than ₹10.4/litre in Q1FY26.

 

In LPG, the under-recovery trend has eased. Nomura estimated the current under-recovery at ₹51 per cylinder, with Q2FY26 quarter-to-date losses at ₹109 per cylinder, down about 30 per cent sequentially from Q1FY26 levels.

Refining Margins: Indian refiners shielded

 

Benchmark Singapore complex refining margins have fallen 27 per cent sequentially so far in Q2FY26. However, Nomura does not expect a material impact on Indian refiners’ core GRMs, citing the larger share of diesel in the local product slate. Diesel spreads remain firm on a quarterly basis, offsetting weakness in gasoline.

 

The brokerage also pointed to sustained discounts on Russian crude, with the spread to North Sea Dated holding at about $2.4/bbl. “This implies no impact on Indian refiners’ core GRMs. Reliance Industries and BPCL are likely to benefit more from Russian crude sourcing, given their higher exposure versus peers such as HPCL and IOC,” it said.

 

Further, reported GRMs in Q2FY26 may receive a marginal boost from inventory gains, Nomura added.

OPEC+ supply moves

 

On the supply side, OPEC+ members Saudi Arabia, Iraq, Kuwait, Russia, UAE, Algeria, Oman, and Kazakhstan agreed earlier this month to raise their collective production ceiling by 137,000 bpd from October 2025. Actual incremental output may be lower, however, as several members are already producing above their quotas.

 

Energy consultancy Argus estimates net additions could be under 70,000 bpd in October, compared with the headline figure. Between April and August this year, OPEC+ restored 1.35 million bpd of supply, well below the 1.92 million bpd quota hikes announced. The next policy decision for November output will be taken at the group’s 5 October meeting.

Implications for sector

 

Nomura said that the INR’s depreciation remains a headwind for OMCs and CGDs, as their input costs are dollar-linked while revenues are in rupees. By contrast, exploration & production (E&P) companies could benefit from the currency’s weakness, as their revenues are dollar-denominated.

 

While crude softness and steady Russian discounts offer some relief, “the pressure from weaker marketing margins and forex depreciation is likely to weigh on near-term earnings of downstream players,” Nomura said.