Rising crude prices may pressure earnings of state-run oil narketing companies: Report

India’s state-owned oil marketing companies (OMCs) could face mounting earnings pressure as crude oil market volatility intensifies amid escalating geopolitical tensions in West Asia, according to a research note by UBS Global Research.

The brokerage warned that the recent rally in crude oil prices and refining margins is creating conditions reminiscent of the disruptions witnessed during the 2022 oil market shock.

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It noted that Indian OMCs remain structurally vulnerable to higher crude prices because a significant portion of their profitability depends on fuel marketing margins.

UBS said integrated margins for state-owned refiners and fuel retailers such as Indian Oil Corporation, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited could come under pressure if crude prices remain elevated while domestic retail fuel prices remain largely unchanged.

According to the brokerage, oil marketing companies have limited flexibility to pass on higher crude costs to consumers because retail fuel pricing in India is influenced by government policy. As a result, any sustained increase in crude prices tends to compress marketing margins, particularly for diesel and petrol, which form a major share of OMC earnings.

UBS said geopolitical disruptions in the West Asia region could continue to push oil prices higher in the near term. The bank has raised its short-term oil price forecasts, estimating crude could average around USD 71 per barrel in the second quarter of 2026 and about USD 72 per barrel for the full year.

However, the brokerage cautioned that upside risks remain significant if disruptions to energy infrastructure persist. In such a scenario, Brent Crude prices could rise above USD 90 per barrel and potentially cross USD 100 per barrel if supply flows remain constrained.

UBS further noted that for Indian OMCs, every USD 5 per barrel increase in crude prices—if not accompanied by retail fuel price hikes—could significantly erode profits by squeezing marketing margins.

Retail fuel prices in India have remained largely stable since May 2022 despite fluctuations in global oil markets. UBS said this limits the ability of oil marketing companies to offset higher input costs.

The brokerage concluded that continued geopolitical uncertainty and limited pricing flexibility could weigh on earnings visibility for India’s state-owned refiners and fuel retailers in the near term.