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Oil & Gas Sector Q3FY26: Downstream Boom Offsets Upstream Weakness

The oil and gas sector is projected to post a 17% year-on-year rise in aggregate EBITDA for Q3FY26, according to a Nuvama report. This strength is primarily driven by robust performance in downstream refining and marketing, supported by a sharp 21% YoY rise in Singapore gross refining margins. However, upstream segments like exploration and production are expected to remain weak due to lower output and softer crude prices averaging around $63 per barrel. The city gas distribution segment is forecast for modest 5% growth, while fuel retail margins have moderated year-on-year.

Key Points: Oil & Gas Sector Q3FY26 Outlook: Strong Downstream Performance

  • Downstream refining drives 17% EBITDA growth
  • Upstream pressured by lower production & crude prices
  • City gas sees modest 5% EBITDA growth
  • Fuel retail margins moderate despite high refining profits
2 min read

Oil & Gas sector set for strong Q3FY26, despite upstream pressures: Report

Oil & Gas sector EBITDA to rise 17% YoY in Q3FY26, driven by refining and city gas, despite upstream pressures and soft crude prices.

"We forecast O&G's Q3FY26E aggregate EBITDA shall jump 17 per cent YoY led by OMCs/RIL/CGDs - Nuvama Report"

New Delhi, January 6

The oil and gas sector is expected to report a strong operational performance in the third quarter of FY26, with aggregate EBITDA projected to rise 17 per cent year-on-year, driven primarily by downstream and city gas segments, according to a sector preview note by Nuvama.

"We forecast O&G's Q3FY26E aggregate EBITDA shall jump 17 per cent YoY led by OMCs/RIL/CGDs, partially offset by ONGC and gas utilities," the report said.

Refining and marketing segments are likely to outperform, supported by a sharp improvement in gross refining margins (GRMs). The report highlighted that Singapore GRMs rose 21 per cent year-on-year, aided by a significant expansion in product cracks, with petrol cracks up over two times and diesel cracks up nearly 1.5 times from last year.

Fuel retail margins, however, remained under pressure despite elevated refining profitability. "Fuel retail margins remain elevated in Q3FY26, but moderated YoY on higher product cracks and INR depreciation," the note said. Diesel retail margins declined to INR 5.5 per litre, down 37 per cent year-on-year, while petrol retail margins stood at INR 10.7 per litre, a 17 per cent year-on-year decline.

Upstream performance is expected to remain weak during the quarter, weighed down by lower production and softer crude prices, the report noted, adding that the average crude price declined to around USD 63 per barrel during the quarter.

The city gas distribution segment is projected to post modest growth, with EBITDA expected to increase 5 per cent year-on-year, as stable margins help offset muted volume growth. "EBITDA +5% YoY on steady margins offsetting weak volume growth," the report stated, citing slower expansion in CNG demand and rising electric vehicle penetration in key urban markets.

Gas transmission and utility businesses are expected to see mixed performance. While LNG-related operations are projected to remain flat year-on-year, pipeline and petrochemical-linked earnings are likely to come under pressure due to weaker margins and higher operating costs.

Overall, the sector outlook for Q3FY26 reflects a divergence between downstream strength and upstream weakness, with refining gains and marketing margins partially offsetting declines in exploration, production, and gas utilities.

- ANI

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Reader Comments

P
Priyanka N
Interesting report. The rise in GRMs is impressive, but the pressure on retail margins explains why we haven't seen a price cut at the pump. The note about EV penetration affecting CNG demand is a crucial long-term trend to watch. India's energy mix is definitely shifting.
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Aman W
So ONGC and upstream are struggling? Not surprising with lower crude prices. But this is a cycle. We need strong domestic production for energy security. Hope the government's focus on exploration under OALP helps in the long run. Jai Hind! 🇮🇳
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Sarah B
As an investor, this divergence is key. Time to be selective. Refining and marketing (OMCs, RIL) look good, but maybe avoid pure-play upstream for now. The 17% EBITDA growth overall is healthy for the sector index.
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Karthik V
The city gas (CGD) growth seems modest at 5%. With more households getting PNG connections, I expected higher volume growth. The competition from EVs in cities like Delhi and Mumbai is real. Companies need to innovate.
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Nikhil C
While the report is optimistic, I have a respectful criticism. It focuses heavily on financial metrics for companies. What about the environmental cost? Strong refining margins often mean more fossil fuel consumption. We need equal focus on the green energy transition.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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