Petrol and Diesel Margins Expected to Rise in Q2 FY27, While LPG Losses May Limit OMC Gains: Report
India’s oil marketing companies (OMCs) are projected to experience a significant recovery in petrol and diesel margins during the second quarter of FY27. A report by JM Financial Institutional Securities indicates that the combined refining and marketing margin for these fuels could rise to Rs 11.4 per litre, up from Rs 2.4 per litre in the previous quarter. However, losses from LPG sales are expected to dampen the overall margin, bringing the effective margin down to Rs 8.5 per litre.
LPG losses remain a drag on margins
The report estimates that OMCs may face LPG losses of approximately Rs 11,000 crore in Q2FY27, a decrease from the Rs 21,200 crore loss projected for the first quarter. These LPG losses are anticipated to reduce the benefits from petrol and diesel margins by about Rs 2.9 per litre in Q2FY27, compared to Rs 5.6 per litre in the previous quarter. JM Financial noted that refining margins are benefiting from disruptions in global petroleum product supplies, with refined product cracks expected to remain strong in the near term.
Crude prices remain key risk
The Singapore refining margin averaged $20.5 per barrel during the second quarter of FY27, with strong diesel margins averaging $61.7 per barrel. However, the recovery in fuel retailing profitability is closely tied to crude oil prices. JM Financial estimates that OMCs could achieve normal margins at a landed Brent crude price of around $95 per barrel under the current pricing and tax structure. If the government reverses previous excise duty cuts and raises retail fuel prices, OMCs would need landed crude prices to drop to about $65 per barrel to restore normal margins.
According to an ICRA report, state-run IOC, BPCL, and HPCL are currently facing marketing losses of Rs 8 per litre on petrol and Rs 9 per litre on diesel, while domestic LPG under-recoveries are around Rs 300 per cylinder as of September. Higher crude and product prices could further impact OMC profitability and cash flows, increasing their short-term borrowing needs for working capital.
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