Rising oil prices hurt the profit margins of OMCs, pumping upstream companies

ET Intelligence Group: A sharp rise in crude oil prices is set to weigh on the profits of oil marketing companies (OMCs) in the March quarter as higher feedstock costs reduce refining margins, soften oil prices and widen recovery under LPG. Brent crude has risen nearly 16% so far in 2026, rising from around $71 per barrel in early January to $82.3 per barrel by March 05. While upstream companies including ONGC and Oil India are benefiting from the rise in crude prices, the level of gains will depend on the overall fiscal and fiscal policies of the government.

Rising crude oil prices reduce the gross margin (GRM) of OMCs as the retail prices of petroleum products such as diesel and petrol do not adjust immediately. GRM is the difference between the prices of crude oil and petroleum products.

“For a $1 per barrel rise in crude oil prices, OMCs’ gross marketing margins for auto fuels decline by ‘0.55 per liter (assuming no change in retail petrol, diesel prices and excise duties on petrol and diesel) and reduce their consolidated EBITDA (earnings before interest, discounts and taxes by 7-7) in a report by JM Financial Institutional Securities. Said OMCs typically earn gross marketing margins of 3.5-4 per liter on petrol and diesel when Brent is around $70 per barrel.

Nomura Financial Advisory & Securities expects integrated margins, which include refining, fuel marketing and LPG storage, to decline by around $3-4 per barrel at current crude oil prices for IOCL, HPCL and BPCL compared to the previous quarter.
High crude oil prices are also dampening the recovery under LPG, which is hurting OMC’s profitability. Nomura points out that LPG inventory recovery in the March quarter has more than doubled to ’69 per cylinder year-to-date from ’33 per cylinder in the previous quarter. Since LPG prices are subsidized, any increase in crude oil costs increases the LPG receipts of OMCs.

Upstream companies including ONGC and Oil India, which directly benefit from rising crude oil prices, are likely to see stronger earnings on the back of higher realisations. ONGC and Oil India will be key beneficiaries if Brent crude oil continues above $70 per barrel, as every $1 increase in oil prices increases their earnings by 1.5-2%, JM Financial Institute Securities said. Spot LNG prices more than doubled to $25 per mmbtu (million British thermal units) after Qatar Gas announced on March 02 that it would halt LNG production. This is likely to affect gas utilities like GAIL, Petronet LNG, Gujarat Gas and city gas distributors as both volumes and margins come under pressure.

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