Brent crude has slipped below $80 per barrel — its lowest level since March 2026 — as geopolitical risk premiums tied to the Middle East conflict continue to unwind. While the retreat offers a measure of relief for oil marketing companies (OMCs), analysts warn that Q1 FY27 profitability is set to take a sharp hit, with full-year earnings under pressure from compressed margins and an uncertain excise duty outlook.

Where Crude Prices Stand

Crude has pulled back to levels last seen before the escalation of the Middle East conflict, driven by easing supply fears following a US-Iran ceasefire deal. Analysts at PL Capital (Prabhudas Lilladher) note that if the situation progresses positively and full normalcy is restored at the Strait of Hormuz, prices could soften further. Notably, the ceasefire, while a positive development, leaves considerable uncertainty — particularly around the nuclear deal.

However, the same analysts caution that a sustained price decline is unlikely. 'We expect crude oil prices to rise again as countries are expected to replenish inventories and Strategic Petroleum Reserves (SPRs) to maintain optimum resource levels, creating incremental demand in the market,' they said. The inventory restocking cycle, a recurring pattern after major supply disruptions, could put a floor under prices sooner than markets anticipate.

Q1 FY27: The Profitability Crunch

Swarnendu Bhushan, Co-Head of Research, Institutional Research at PL Capital, has flagged a significant under-recovery for OMCs in the first quarter. 'Q1 FY27 is expected to weigh sharply on profitability, impacting earnings for the full year. We expect an under-recovery of ₹7 per litre and ₹10 per litre in Q1 FY27, after considering a ₹10 per litre excise cut and capping of cracks at $10 per barrel and $15 per barrel for MS (petrol) and HSD (high-speed diesel), respectively,' he said.

The core problem: the benefit from lower crude prices arrived too late in the quarter to offset the full-quarter drag of elevated input costs and squeezed marketing margins. Overall Q1 FY27 performance, analysts noted, remains weak despite the crude correction.

The Excise Duty Risk

A key risk that analysts argue is under-appreciated is the potential rollback of the excise duty cut. The reduction was introduced as a crisis management measure — not a permanent structural change — during the peak of the energy shock. With crude moderating and retail fuel prices hiked, the government may gradually withdraw the concession, according to analyst projections.

This creates a double bind for OMCs: if crude stays low, the government has less justification to maintain the excise relief; if crude rises again, the relief may be rolled back just as input costs climb. Either scenario pressures gross marketing margins (GMMs).

Outlook for OMCs Through FY27

The broader picture for OMCs remains cautious. 'Overall, while near-term sentiment has improved, Q1 FY27 losses and continued uncertainty around the excise duty rollback suggest that OMC profitability is likely to remain under pressure through FY27,' analysts at PL Capital said. Market participants are reassessing the near-term supply outlook as geopolitical risk premiums unwind, but the structural earnings headwinds for Indian OMCs have not yet cleared. How quickly the US-Iran situation stabilises — and whether the nuclear deal holds — will be the key variables to watch in the months ahead.