India’s Petroleum Demand Set To Grow, But Oil Companies Face Margin Pressure, Fitch Says

India’s petroleum product demand is expected to rise by 3% to 4% in the financial year ending March 2025 (FY25), driven by increased consumer, industrial, and infrastructure activity, according to a report from Fitch Ratings. This growth projection aligns with the agency’s forecast of a 6.4% GDP growth for the same period.

The demand boost will primarily be fueled by higher consumption of diesel and petrol, which together constitute a large portion of the country’s petroleum product usage. The first seven months of FY25 have already seen a 3% rise in consumption, following a 5% growth in FY24.

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However, while demand growth remains strong, Indian oil marketing companies (OMCs) are likely to face challenges in refining margins. Fitch forecasts a decline in these margins, which are expected to fall below mid-cycle levels in FY25. This is due to a combination of regional oversupply, lower product cracks, and diminishing benefits from price differences between various crude oil types.

Despite these difficulties in refining, the outlook for marketing margins remains more positive. The report notes that the drop in Brent crude oil prices, compared to FY24, will support healthy marketing margins, offering some relief to OMCs facing pressure on the refining side.

Refiners without marketing operations, such as HPCL-Mittal Energy Limited (HMEL), are anticipated to experience greater profitability challenges. Without the offset of strong marketing margins, pure refiners are likely to struggle more. However, Fitch projects that HMEL’s financial outlook will improve in FY26 as refining margins recover to mid-cycle levels, driven by a reduction in regional oversupply and continued decline in Brent crude prices.

The report underscores the crucial balance between refining and marketing for Indian OMCs, suggesting that robust marketing performance will help mitigate some of the downside risks associated with lower refining margins in the near term.