Oil & Gas Sector Poised for Strong Q3 Despite Upstream Headwinds

ENERGY
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AuthorAnanya Iyer|Published at:
Oil & Gas Sector Poised for Strong Q3 Despite Upstream Headwinds
Overview

India's oil and gas sector anticipates a robust Q3FY26, with aggregate EBITDA projected to surge 17% year-on-year. Downstream segments, particularly refining and marketing, lead the charge fueled by higher gross refining margins (GRMs). City gas distribution also shows modest growth. However, upstream operations face headwinds from lower production and softer crude prices, presenting a mixed performance outlook for the industry.

Downstream Dominance Fuels Sector Outlook

The oil and gas sector is set for a strong operational performance in the third quarter of FY26, with aggregate EBITDA projected to climb 17% year-on-year. This surge is largely propelled by advancements in the downstream and city gas distribution segments.

Refining Margins Bolster Performance

Gross refining margins (GRMs) are expected to show a significant year-on-year improvement. Singapore GRMs have already risen 21%, driven by substantial expansion in product cracks, with petrol and diesel cracks nearly doubling and increasing 1.5 times respectively from the previous year. This fuels optimism for refining and marketing segments.

Retail Margins Face Pressure

Despite robust refining profitability, fuel retail margins are moderating. Diesel retail margins have declined 37% year-on-year to ₹5.5 per litre, while petrol retail margins fell 17% to ₹10.7 per litre. This dip is attributed to higher product cracks and the depreciation of the Indian Rupee.

Upstream Operations Underperform

Performance in the upstream segment is anticipated to remain subdued. Lower production volumes coupled with softer crude oil prices, which averaged around $63 per barrel during the quarter, are weighing on results. Companies like ONGC are expected to contribute to this weaker upstream showing.

City Gas Navigates Muted Demand

The city gas distribution (CGD) segment is forecast to achieve modest growth, with EBITDA expected to increase by 5% year-on-year. While margins remain stable, growth is tempered by slower expansion in compressed natural gas (CNG) demand and increasing electric vehicle penetration in urban markets.

Utilities Face Mixed Fortunes

Gas transmission and utility businesses are set for a mixed performance. LNG-related operations are projected to be flat year-on-year. However, pipeline and petrochemical-linked earnings may face challenges due to weaker margins and elevated operating costs.

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