Indian Oil To Bharat Petroleum: Why Oil Marketing Firms Could See A Strong Q1
Despite geopolitical noise, the operating environment remains favourable for OMCs.
India’s state-run oil marketing companies—Indian Oil Corp, Bharat Petroleum Corp., and Hindustan Petroleum Corp.—are poised for a strong performance in the first quarter of fiscal 2026, driven by improved refining margins, higher fuel marketing spreads, stable crude prices, and easing LPG losses.
What's Worked in Their Favour So Far
Refining Margins Bounce Back
Singapore Gross Refining Margins, a benchmark for Asian refiners, averaged $5.5/bbl in first quarter of financial year 2026, up from $3.1/bbl in the fourth quarter. This marks the highest level since fourth quarter of financial year 2024 and is a key earnings driver. Every $1 increase in GRMs typically boosts earnings by 14–16% across the three OMCs. The recovery is supported by rising spreads on petrol and diesel.
Marketing Margins Remain Robust
Fuel marketing margins have remained strong, with integrated margins rising to Rs 9.3/litre in the first quarter from Rs 6.3/litre in the previous quarter. Every Rs 0.5/litre rise in fuel margins lifts Ebitda by 7–11%, depending on the company. This stability in fuel pricing and robust demand has helped cushion potential pressures from crude price fluctuations.
Crude Price Stability Limits Inventory Losses
The average crude oil price fell from $74/bbl in quarter ended March to $67/bbl in June. Current prices are near $75/bbl, but remain below the FY25 average of $81/bbl. According to ICICI Securities' Probal Sen, this makes the crude level manageable, and inventory losses minimal. Even a $1/bbl rise impacts retail margins by just Rs 0.53/litre—still keeping them above historical levels.
Lower LPG Losses Aid Profitability
LPG under-recoveries have declined significantly, from Rs 247 per cylinder in fourth quarter to Rs 177 in the first quarter of this quarter, declining further from Rs 151 currently. This is due to a Rs 50 per cylinder domestic price hike and a 12–13% drop in international LPG prices.
Geopolitical Risks In Focus
Tensions in the Middle East, especially involving Israel and Iran, have led to short-term crude price spikes. However, past conflicts have shown limited long-term supply disruption through the critical Strait of Hormuz, and markets continue to price in uncertainty rather than real scarcity.
It is crucial to monitor what happens in the Strait of Hormuz in a couple of weeks for any signs of an actual effect on crude oil supplies. That will determine the direction of crude oil prices, he said.
Outlook
Despite geopolitical noise, the operating environment remains favourable for OMCs. With solid refining and marketing margins, easing LPG losses, and manageable crude prices, the quarter ended June could be one of the strongest quarters for India’s oil retailers in recent times.
