Oil prices may soften further but Q1 FY27 likely to weigh sharply on profitability for OMCs
Crude oil prices have retreated sharply and are trading near their lowest levels since the onset of the Middle East conflict. According to analysts, if the US-Iran situation progresses positively and full normalcy is restored at the Strait of Hormuz, crude prices may soften further.
However, “we expect crude oil prices to rise again as countries are expected to replenish inventories and Strategic Petroleum Reserve (SPRs) to maintain optimum resource levels, creating incremental demand in the market,” said analysts from PL Capital (Prabhudas Lilladher).
After months of one of the worst energy shocks in recent history, we see some positivity as the US-Iran ceasefire deal finally gets signed, although uncertainty remains, especially over the nuclear deal, they added.
Brent crude dropped below $80 per barrel, its lowest level since March 2026, providing a positive respite for oil marketing companies (OMCs).
“Q1 FY27 is expected to weigh sharply on profitability, impacting earnings for the full year. We expect an under-recovery of Rs 7 per litre and Rs 10 per litre in Q1 FY27, after considering a Rs 10 per litre excise cut and capping of cracks at $10 per barrel and $15 per barrel for MS (petrol) and HSD (high-speed diesel), respectively,” said Swarnendu Bhushan, Co-Head of Research, Research Associate, Institutional Research, PL Capital.
However, the overall Q1FY27 performance remains weak as the benefit from lower crude prices was insufficient to offset the full-quarter impact of elevated input costs and compressed marketing margins, analysts noted.
Excise duty rollback remains a risk for OMC earnings. While the recent improvement in crude prices and retail fuel price hikes have resulted in a recovery in GMMs, a key risk remains under-appreciated — the potential rollback of the excise duty cut.
The excise duty reduction was introduced as a crisis management measure rather than a permanent structural change. With crude prices moderating, retail fuel price hikes implemented, and marketing margins turning positive, the government may gradually withdraw this benefit, analysts projected.
“Overall, while near-term sentiment has improved, Q1 FY27 losses and continued uncertainty around the excise duty rollback suggest that OMC profitability is likely to remain under pressure through FY27,” they added.
As geopolitical risk premiums continue to unwind, market participants are reassessing the near-term supply outlook, contributing to softer crude oil prices despite continued monitoring of developments in the region.
