Oil and gas sector faces margin squeeze as crude and LNG costs remain high: report

India’s oil and gas sector is heading into a difficult period, with high crude prices, expensive imported LNG and weak fuel-marketing margins squeezing downstream profits. Brokerage firm Equirus said the pressure could persist in the near term, even as strong refining economics offer some protection.

The environment remains particularly challenging for oil marketing companies. Petrol marketing margins have turned further negative, while diesel margins remain deeply negative. Integrated margins have also fallen from recent peaks, suggesting that stronger refining returns may not fully compensate for losses on the marketing side.

Refiners still benefit from robust product spreads. Gasoline cracks are about 45% above their one-year average, while gasoil cracks are roughly 82% higher. Jet-fuel cracks have risen 71.6% year on year. Equirus said these gains continue to support refiners, but higher crude costs and marketing losses are increasingly eroding the benefit.

The gas segment faces additional pressure from expensive spot LNG. Asian spot LNG reached $24 per million British thermal units in the week ended Sept. 4, up 60.6% from a year earlier and 22.3% over three months. Equirus expects imports to ease after strong August arrivals as higher LNG prices begin to affect gas-consuming businesses.

LPG supply is also changing after disruptions in West Asia. India has increased sourcing from the United States and is developing additional non-Gulf supply channels, but longer shipping distances and higher freight rates raise delivered costs. Equirus described the shift as “India’s LPG diversification comes at a higher cost.” Geopolitics, crude prices, LNG availability and freight costs will remain key variables for sector margins in the coming months.

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India’s LPG diversification comes at a higher cost.