State-owned oil marketing companies are likely to register subdued gross refining margins during the upcoming financial year 2025-26 on account of a slowness in global consumer and industrial demand, especially in China, and additional supply flowing from refinery capacity additions seen globally, according to analysts. However, demand for petroleum products in the country is expected to remain robust during FY26 with bulk demand coming from diesel, petrol and LPG, resulting in healthy marketing margins.
As per India Ratings, the credit profile of downstream companies is likely to remain stable during the year, driven by a healthy demand for petroleum products and healthy marketing margins that would offset compressed gross refining margins (GRMs), yielding healthy overall EBITDA.
The agency expects EBITDA for standalone petrochemical (petchem) players and petchem EBITDA for integrated refiners to improve in FY26 compared to the lows seen during FY24. “Petchem EBITDA started improving during FY25, after remaining under pressure during FY24, on account of an improvement in the spreads for petrochemical products,” it said.
During the first half of FY25, EBITDA for integrated OMCs was supported by healthy marketing margins on the back of declining crude oil prices, subdued crack spreads, and stable retail prices.
“Indian oil and gas demand is expected to remain strong in FY26, 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 investments decisions in India,” said Bhanu Patni, Associate Director, Corporates, Ind-Ra.
While downstream companies are expected to yield healthy overall EBITDA, the country’s upstream companies may see a fall in EBITDA generation with a moderation in oil prices and a reduction in production from legacy fields. However, the impact of low crude oil price 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, India Ratings said.
“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 estimated break-even cost of production at $40-45/bbl, leaving an EBITDA of $20-30/bbl,” the agency said.
Oil prices averaged $78.7/bbl during Q2FY25 and declined to $75.2/bbl during October and $73.02/bbl during November.
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