Higher crude prices and expansion plans may weigh on OMC performance

Rising crude costs, reduced access to discounted Russian oil and heavy capex may pressure OMCs, though strong GRMs, demand growth and LPG subsidies support profits

The Q3FY26 saw crude oil producers like ONGC suffering low crude realisation in the range of $61-$62 per barrel. Downstream refiners and OMCs gained and delivered good results in Q3. Commodity advisories indicate crude oil may climb in the short-term and an enforced shift away from discounted Russian crude will also push up costs for Indian refiners.

 

All the OMC majors are undergoing major capex for expansion projects which could impact debt profiles. Downstream moves into petrochemicals may not be profitable given global oversupply. But OMC marketing margins on diesel and petrol are healthy. Ind-Ra’s calculations indicate OMCs earned a gross margin of ₹9-₹10/litre on diesel and ₹11-₹12/litre on petrol during Q3FY26. The marketing operating profit of OMCs is being aided by demand growth. The government is also partially compensating OMCs for LPG under-recoveries. 

Refinery capacity may reach 310 million metric tonnes (MMT) by FY30-end from 258 mmt currently, given ongoing projects by OMCs. Consumption of petroleum products rose to 181.6 mmt during year-to-date April-December 2025 versus 178.6 mmt between April-December 2024. Brent crude oil prices averaged $63.7 per barrel during Q3FY26 down from Q2FY26 levels of $69.1 per barrel and $74.7 per barrel levels in Q3FY25. But Brent was again above $70 by February 20, amidst tense Iran-US negotiations and there was a small sell-off in OMC stocks. 

Geopolitics apart, given slow global economic growth, there is likely to be crude oversupply through CY26. There may be a big surge in oversupply if there is a peace deal in Ukraine and Russian oil is out of sanction. It would also take outright conflict in West Asia to lead to supply disruptions though there is a “tension premium”. If an Iran-US deal is reached, prices may drop again, maybe to $55 levels. Hence, most analysts and commodity traders expect OMCs to continue doing well, though geopolitics remains an overhang.

 

OMCs reported aggregated operating profit and net profit of ₹39,500 crore and ₹23,740 crore respectively for Q3FY26 – up 91 per cent and 140 per cent respectively (up 13 per cent Q-o-Q and 17 per cent Q-o-Q respectively). Much lower LPG under-recovery of ₹1,940 crore (Q3FY25 loss was ₹11,670 crore) and higher gross refining margins or GRMs drove profits. But rising gas prices implies under-recoveries could rise again.

 

According to HPCL, LPG under-recoveries went from ₹35/cylinder in Q3FY26 to ₹95 per cylinder in January this year and may rise till ₹120 per cyclinder. HPCL’s GRM at $8.85 per barrel was dragged down by a crude contamination incident in the Mumbai refinery. But the Vizag residue upgradation facility (RUF) unit is fully commissioned and may add $2.5 per barrel to GRMs once it is stabilised in FY27. The Barmer refinery is near complete with first production this month and full capacity by Q1FY27 with petchem integration by FY28.

 

The gross debt is down 10 per cent Y-o-Y to ₹48,700 crore and standalone debt to equity is at 0.85 times with management saying further deleveraging is a priority. In Q3FY26, HPCL’s refining segment recorded inventory loss of ₹540 crore, while marketing recorded an inventory gain of ₹14 crore. The government’s LPG subsidy of ₹7,900 crore may offset some LPG losses. The company has received LPG subsidy of ₹1,320 crore as part of ₹7,900 crore compensation, to be disbursed in equal monthly instalments.

 

BPCL’s Q3FY26 operating profit was ₹11,700 crore, up 54 per cent Y-o-Y and 19 per cent Q-o-Q, with strong GRMs, and higher throughput partly offset by subdued marketing margins. There was a marketing inventory loss of ₹500 crore. The GRM was at $13.3 per barrel, up 130 per cent Y-o-Y and 23 per cent Q-o-Q. The net profit at ₹7,500 crore was up 62 per cent Y-o-Y and 17 per cent Q-o-Q. BPCL received LPG subsidy of ₹1,300 crore, while Q3FY26 LPG under recoveries were ₹470 crore with cumulative LPG under-recoveries of ₹12,900 crore.

 

Indian Oil Corporation (IOCL) reported GRM at $12.2 per barrel, up 300 per cent Y-o-Y and 15 per cent Q-o-Q, along with a huge refining inventory gain of $2.8 per barrel (₹3,600 crore). Crude throughput grew 7 per cent Y-o-Y (over 10 per cent Q-o-Q). Chemical division saw segment loss at ₹360 crore versus loss of ₹159 crore Y-o-Y and positive segment profit of ₹170 crore sequentially. Despite LPG subsidy of ₹2,400 crore, IOCL’s cumulative LPG under-recoveries remain at ₹24,300 crore with Q3 under-recovery of ₹1,000 crore. Gross debt at ₹1.16 trillion fell 12 per cent Y-o-Y.