India's Oil And Gas Demand To Remain Strong, Stable Outlook For Downstream Firms: India Ratings

India's oil and gas demand is likely to remain strong in the next financial year even as weak global demand will drive down refining margins, India Ratings and Research said on Thursday.

The agency expects the credit profile of downstream companies to remain stable during the year, driven by healthy demand for petroleum products and healthy marketing margins that would offset compressed Gross Refining Margins, yielding healthy overall Ebitda.

Credit profile may see an addition of debt on account of under-construction refinery expansion projects for all the major oil marketing companies. The credit profile of upstream oil companies shall remain dependent on crude oil prices, Ind-Ra said in the fiscal 2026 Oil and Gas Outlook.

Ebitda generation for upstream companies may fall with a moderation in oil prices and a reduction in production from legacy fields. However, the impact of low crude oil prices is expected to be offset by the removal of special excise on the production of crude and an increase in production expected from new discoveries.

"Indian oil and gas demand is expected to remain strong in fiscal 2026, leading to an expansion in the refinery and petrochemical capacities. India's refinery capacity is expected to increase by 22% in the next two-three years. Ind-Ra expects the strong demand to be driving oil and gas investment decisions in India," said Bhanu Patni, Associate Director, Corporates, Ind-Ra.

Ind-Ra expects the City Gas Distribution sector’s credit profile to remain stable in fiscal 2026 post-reduction of low-cost domestic gas allocation. Return on invested capital could moderate, however it would remain healthy.

New geographical areas could see some pressure on capex execution as internal accruals for funding capex may come down. The performance of standalone petrochemical players may improve during fiscal 2026 as they benefit from an improvement in the crack spreads and easing of the oversupply situation created due to the rampant capacity addition during FY19-FY24, especially in China.

The agency expects GRMs to remain subdued during fiscal 2026 like in the first half of fiscal 2025, on account of a slowness in global consumer and industrial demand, especially in China, and additional supply flowing from refinery capacity additions seen globally.

However, demand for petroleum products in India is expected to remain strong during fiscal 2026, with bulk demand coming from diesel, petrol and LPG. Ebitda for Indian integrated OMCs was supported by healthy marketing margins during the first half of fiscal 2025 on account of declining crude oil prices, subdued crack spreads and stable retail prices.

Ind-Ra said EBITDA for standalone petrochemical (petchem) players and petchem Ebitda for integrated refiners to improve in fiscal 2026 compared to the lows seen during fiscal 2024. Petchem Ebitda started improving during fiscal 2025, after remaining under pressure during fiscal 2024, on account of an improvement in the spreads for petrochemical products.

It felt upstream companies will continue to earn healthy margins, despite the current decline in crude oil prices, as they would remain above $65 per barrel.

This would keep sufficient cushion in margin, with an estimated break-even cost of production at $40-45 a barrel, leaving Ebitda of $20-30 per barrel.

Oil prices averaged $78.7 per barrel during second quarter of fiscal 2025 and declined to $75.2 during October 2024 and $73.02 in November 2024.

Crude prices will remain dependent on global geopolitical developments, including demand pickup and production targets announced by the OPEC+, it said, adding for domestic producers, some relief from the impact of a decline in oil prices on account of the removal of windfall profit tax on crude is expected.The government had announced a reduction in the overall share of domestic gas allocation to CGD companies.

The demand increase in the CGD segment coupled with the declining production of Administered Price Mechanism gas has led to the decline in the priority allocation of APM gas to the CGD sector especially for CNG.

Ind-Ra said the reduced allocation will expose the players in the sector to the risk of managing long-term supply contracts.