OMCs likely to register sequential dip in Q2FY26 on weak marketing margins

State-run oil marketing companies (OMCs) are likely to report a sequential decline in earnings for the July-September quarter of 2025-26 (Q2FY26), as rising crude prices and stable retail fuel prices put pressure on marketing margins. However, analysts expect an uptick in earnings compared with the same period last year.

Crude oil prices rose around 4% in rupee terms during the quarter, while retail fuel prices remained flat. Despite this, some cushion is expected from lower inventory losses and an assumed ₹30,000 crore government compensation for subsidised LPG sales.

Kotak Institutional Equities forecasts a sequential decline in earnings for state-controlled refiners, with profits at Bharat Petroleum Corp. Ltd. (BPCL) falling 34%, Hindustan Petroleum Corp. Ltd. (HPCL) 46%, and Indian Oil Corp. Ltd. (IOCL) 36%. On an annual basis, however, profits are expected to rise sharply, with BPCL up 41%, HPCL 51% and IOCL 114%.

JM Financial also projects OMCs EBITDA to decline 16-37% on a sequential basis in Q2FY26 on moderation in auto fuel gross marketing margins.  

The weighted average auto-fuel gross marketing margin of oil marketing margins moderated sharply to Rs 5.6/litre in Q2FY26 against Rs 9.8/ltr in Q1FY26. But this is still significantly higher than historical Rs 3.5/ltr driven by 4.1% QoQ rise in crude price and $3.7/bbl QoQ rise in diesel cracks, according to JM Financial.

LPG under-recoveries are expected to decline to ₹4,500 crore in Q2FY26 from ₹7,900 crore in Q1FY26, helped by a moderation in global LPG prices.

“With no retail price change, higher diesel cracks, and weaker INR, marketing earnings will likely be lower. We assume OMCs to account for Rs 30,000 crore compensation in Q2FY26,” Kotak said.

Analysts expect the gross refining margins (GRMs) of OMCs to improve in the quarter under review.  

“We expect OMCs’ Q2FY26 reported GRM to recover QoQ to $6.4-6.9 per barrel against $2.2-4.9/bbl reported in in the first quarter led by strong $3.7/bbl QoQ rise in diesel cracks and limited crude inventory loss in Q2FY26 as against huge inventory loss of $0.5-4.8/bbl in Q1FY26,” JM Financial said in its preview.

JM Financial expects Q2FY26 EBITDA to decline 37% QoQ for BPCL to Rs 6,100 crore; 37% QoQ for HPCL to Rs 4,800 crore, and 16% QoQ for IOCL to ₹10,600 crore.

The upstream oil sector is likely to benefit from improved gas realisations and higher crude and gas sales volumes, partially offsetting the impact of softer crude prices.

Kotak expects ONGC’s EBITDA to increase 3.5% Y-o-Y (up 1.1% QoQ) and that of Oil India’s by 5.9% Y-o-Y (+27% QoQ on a weak base). For ONGC, the brokerage expects higher oil and gas sales volumes and higher gas realisations to offset the 8% lower net oil realisations.

“Oil India and ONGC are likely to witness higher crude and gas realisation and crude sales volume sequentially. Hence, Oil India’s EBITDA is likely to be up 2.3% QoQ while ONGC’s EBITDA is expected to decline 2.2% QoQ on higher opex in Q2FY26,” JM Financial noted.

For the city gas distribution companies, margins will likely be weaker on higher gas costs (higher gas prices, weaker INR) and not enough price increases, as per analysts at Kotak.