Ongoing restrictions on Russian crude and refined product flows, coupled with an oversupplied global oil market, are expected to keep crude prices subdued while supporting refining margins, a trend that has direct implications for state-run oil marketing companies IOC, BPCL and HPCL, according to a report by Nuvama Institutional Equities.
The report highlights that sanctions on Russian oil have resulted in a build-up of stranded crude inventories, much of it held at sea. As these barrels are gradually discharged into markets such as India, global supplies are expected to remain in surplus, putting downward pressure on crude prices. FGE Nexant estimates a surplus of around 2 million barrels per day (mbpd), with Brent crude likely to trade in the $55-60 per barrel range in calendar year 2026
Lower crude prices are structurally positive for India’s PSU OMCs, as they reduce input costs and ease pressure on domestic fuel pricing. However, the report notes that the key earnings driver for IOC, BPCL and HPCL will remain refining margins rather than crude prices alone.
According to the report, restrictions on Russian oil trade and the European Union’s ban on Russia-derived refined products have put nearly 1 mbpd of Russian diesel and fuel oil exports at risk. This has tightened global product supply and supported refining margins, particularly for middle distillates such as diesel, which form a significant share of PSU OMC output
The report expects long-term Singapore benchmark gross refining margins (GRMs) to stabilise at $6-7 per barrel, a level that is supportive for Indian PSU refiners given their complex refinery configurations and strong domestic demand base. This outlook is favourable for IOC, BPCL and HPCL, which benefit from scale, integrated logistics and captive retail networks.
The report however cautions that near-term volatility in margins cannot be ruled out due to rising global crude inventories, higher refinery utilisation rates and new global capacity additions. A faster easing of Russian trade frictions could also pressure product cracks.
On the export front, the report notes that tighter EU rules on Russian-origin molecules could indirectly affect Indian refiners, although the impact is expected to be more pronounced for private exporters. For PSU OMCs, which are largely domestically focused, the risk remains limited, with refining profitability driven primarily by domestic demand and regulated pricing dynamics.
Overall, the report says that an environment of lower crude prices combined with structurally healthy refining margins is likely to support margins for IOC, BPCL and HPCL, even as geopolitical developments and sanctions continue to drive periodic volatility in global energy markets.
