Oil marketing companies (OMCs) will see operating profit surge more than 50% to $18-20 per barrel this fiscal from $12 last fiscal, driven by stronger marketing margin on account of stable retail fuel prices and favourable crude oil dynamics, according to a report by ratings agency Crisil. 

OMCs earn from two primary businesses: refining and marketing. In refining, they earn a gross refining margin (GRM), and in marketing, they earn a margin on petrol, diesel, and other petroleum products sold. 

"This fiscal, the improvement in marketing margin will more than offset a moderation in refining margin owing to slow growth in global demand for fossil fuels as the world transitions towards cleaner energy sources. The resultant healthy accruals will support capital expenditure (capex) plans of OMCs, strengthening their credit metrics," Crisil said in a research note. 

An analysis of public-sector OMCs rated by Crisil, accounting for nearly 90% of the sector revenue, indicates that OMCs’ operating profit dipped to as low as $0.13 per barrel in fiscal 2023, when oil prices averaged $93 per barrel, and peaked at about $20 per barrel in fiscal 2024, when oil prices softened to $83 per barrel. While annual margins have fluctuated, they have ultimately normalised to $11 per barrel, it said. 

The fluctuations in margins have been attributed to geopolitical uncertainties over the past five fiscal years, which impacted oil prices, while retail fuel prices have been rangebound. 

In fiscal 2025, OMCs’ operating profit of $12 per barrel was in line with the decadal industry average. With crude oil prices averaging $79 per barrel, GRM was $6 per barrel, and so was marketing margin (Rs 3 per litre). 

“This fiscal, crude price, though volatile, is likely to soften to $65-67 per barrel. GRM is expected to remain modest at $4-6 per barrel as moderate global demand and energy transition trends weigh on refining spreads. Amid this, unchanged retail fuel prices will boost marketing margin to $14 per barrel (Rs 8 per litre), resulting in overall margin improving more than 50% to $18-20 per barrel,” says Anuj Sethi, Senior Director, Crisil. 

The Crisil note said the higher overall return will drive up cumulative cash accrual to Rs 75,000-80,000 crore this fiscal (vs Rs 55,000 crore last fiscal), which will support the Rs 90,000 crore capex plan of OMCs, largely towards brownfield capacity expansion. Notably, no major capacity addition is expected globally, except in emerging economies such as India and the Middle East. 

About 80% of the budgeted capex is directed towards addressing domestic demand for petroleum and petrochemical products, while the remainder is earmarked for product pipelines, marketing infrastructure and green-energy initiatives.

Joanne Gonsalves, Associate Director, says while the industry’s capex trajectory continues, healthy profitability will limit reliance on external debt. "Hence, the ratio of debt to earnings before interest, tax, depreciation and amortisation (Ebitda) for OMCs in our portfolio is expected to improve to ~2.2 times this fiscal from 3.6 times last fiscal."