Oil Majors, ONGC Ltd, Oil India to expect low profit due to subdued production level, lower crude oil prices

India's demand for petroleum products, including petrol, diesel, and LPG, is expected to increase by 3-4% in the current financial year, which ends on March 31, 2025, according to a report by Fitch Ratings. This growth is attributed to rising consumer demand, industrial expansion, and ongoing infrastructure development.

For India's oil marketing companies (OMCs), refinery margins are anticipated to fall below their mid-cycle levels in FY25. This decline is driven by weaker product cracks, regional oversupply, and reduced gains from price differentials between various types of crude oil. 

Meanwhile, profits for upstream companies such as Oil and Natural Gas Corporation Limited (ONGC) and Oil India Limited (OIL) are expected to decrease due to stagnant production levels and lower crude oil prices. Additionally, domestic gas prices from older fields are forecasted to remain capped at $6.50 per MMBTU in the second half of FY25, as these prices are determined by a formula linked to 10% of crude oil prices.

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However, the report highlighted that marketing margins would improve compared to FY24 due to lower Brent crude oil prices this fiscal year. “This improvement will help offset the pressure from reduced refining margins for oil marketing companies. Pure refiners, such as HPCL-Mittal Energy Limited (HMEL, BB+/Stable), will face greater profitability challenges,” the report said.

Fitch expects refining margins to recover to mid-cycle levels in FY26 as regional oversupply eases and Brent crude prices align with Fitch’s projections. It also anticipates that marketing margins will remain supportive.

HMEL, which has limited rating headroom in FY25, is likely to see its position improve in FY26 as refining margins normalize. India’s overall oil and gas production is anticipated to remain flat in FY25.

Crude oil output is expected to drop by 2-3%, as upstream companies continue to combat natural declines in production from aging fields despite deploying technology to improve recovery rates and access isolated reservoirs. Production is projected to grow modestly in FY26, supported by increased output from ONGC’s eastern offshore KG Basin and privately owned fields, the report added.

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