OMCs to See Petrol, Diesel Margins Jump in Q2FY27, But LPG Losses Limit Gains

India's oil marketing companies (OMCs) are likely to see a significant recovery in petrol and diesel margins in the second quarter of FY27. Although losses on LPG sales are expected to continue to weigh on the overall benefit. According to a report by JM Financial Institutional Securities.

JM Financial has forecast that the combined refining and marketing margin on petrol and diesel will increase to Rs 11.4 per litre in Q2FY27. Up from Rs 2.4 per litre in the previous quarter. However, after accounting for LPG losses, the effective margin is expected to be lower at Rs 8.5 per litre.

Refining margins are likely to remain strong in the near term. Driven by disruptions in global petroleum product supplies and tight product markets. The brokerage's assessment is that refined product cracks will continue to be a challenge.

Read More: Builder's Parking Policy Sparks Dispute in Mumbai Housing Society

Global refinery throughput has declined by around 4-5 million barrels per day from a year earlier. Largely due to refinery disruptions in the Middle East and Russia, as well as lower operations at some Asian refineries. This has contributed to tighter product supplies.

Crude prices remain a key risk for OMCs. With the brokerage estimating that they could earn normal margins at a landed Brent crude price of around $95 per barrel under the current fuel pricing and tax structure.

However, if the government were to completely reverse earlier excise duty cuts and retail fuel prices were to increase, OMCs would need landed crude prices to fall to around $65 per barrel to restore normal margins.

LPG losses are likely to continue to weigh on OMCs. With the brokerage estimating that they could incur LPG losses of around Rs 11,000 crore in Q2FY27.

Also Read: Anthropic Sets Up Wet Lab in San Francisco Bay Area for AI-Driven Biology and Drug Science

State-run IOC, BPCL, and HPCL are facing marketing losses of Rs 8 per litre on petrol and Rs 9 per litre on diesel. Meanwhile, domestic LPG under-recoveries stood at around Rs 300 per cylinder in September.

ICRA has warned that higher crude and product prices could weigh on OMC profitability and cash flows. Increasing their short-term borrowing requirements for working capital.

According to ICRA, the OMCs are likely to face significant challenges in restoring their profitability and cash flows, with the brokerage estimating that they could incur significant losses on LPG sales.