The oil and gas sector is expected to report a mixed performance in October-December quarter (Q3FY26), with strong gains in refining offset by weakness in upstream businesses.During the quarter, Singapore gross refining margins (GRMs) jumped sharply by about 97% quarter-on-quarter to nearly $7.5 per barrel. At the same time, Brent crude prices fell by around $5.4 per barrel sequentially, averaging close to $63.6 per barrel. This divergence is set to shape company earnings across the sector.Reliance Industries is expected to report a strong quarter, led by its oil-to-chemicals (O2C) business. Higher refining margins are likely to drive growth, with overall EBITDA expected to rise by about 5% quarter-on-quarter.
The O2C segment is estimated to post around 15% growth
The retail business may see nearly 4% year-on-year growth
Reliance Jio is expected to report 4% year-on-year revenue growth
Standalone EBITDA for oil marketing companies is expected to improve sequentially. Hindustan Petroleum Corp (HPCL), Bharat Petroleum Corporation (BPCL) and Indian Oil Corporation (IOCL) are likely to report EBITDA growth in the range of 9% to 18% quarter-on-quarter, supported by stronger refining margins.The receipt of LPG compensation is also expected to provide additional support to earnings during the quarter.Upstream companies are expected to report a weaker quarter. Oil and gas production volumes for ONGC and Oil India are likely to remain largely flat, both on a quarter-on-quarter and year-on-year basis.However, lower crude oil prices are expected to drag realisations down by around 7–8%, which could result in a similar decline in EBITDA on a year-on-year basis for both companies.City gas distribution (CGD) companies are expected to post healthy earnings, backed by stable margins and volume growth.
Gas Utilities: Moderate to Flat PerformanceGas utilities are expected to deliver a muted performance in Q3FY26.
Valuations: Where the Sector Stands
Based on FY27 earnings estimates:
Reliance Industries trades at around 27.2x
BPCL is valued at 10.1x
IOCL and HPCL trade in the range of 7.8x to 10.7x
In the CGD space:
Indraprastha Gas trades at 15.9x, lower than its earlier highs
Mahanagar Gas is at 11.3x
Gujarat Gas remains the most expensive CGD stock
While Q3FY26 numbers will reflect improving refining economics, a lot has changed after the quarter ended. Global macro conditions, supply trends, and crude price movements have seen sharp shifts in recent weeks.As a result, management commentary and outlook will be the most critical factor for investors tracking oil and gas stocks this earnings season.Dayanand Mittal, Oil & Gas Analyst at JM Financial Institutional Securities said his preference remains with upstream oil companies such as ONGC and Oil India over oil marketing companies (OMCs). He believes OMCs are currently undertaking aggressive capital expenditure in refining and petrochemicals, which could be value destructive from a minority shareholder perspective.According to him, returns from refining projects are likely to remain in single digits, while the petrochemical segment faces terminal value concerns due to intense competition from China.Mittal also pointed out that OMCs valuations had been trading above historical averages until recently. While the recent correction has brought valuations closer to fair value, he does not see meaningful upside at current levels. He added that the risk of an excise duty hike further weakens the investment case, and advised staying cautious on the segment until there is greater clarity.In contrast, he remains positive on Oil India, which he sees as a key theme in the oil sector. Mittal expects the company to deliver around 15% earnings compounding over the next two to three years, driven by strong growth in oil and gas production.He also highlighted the expansion of Numaligarh Refinery Limited (NRL) from 3 million tonne to 9 million tonne, noting that the project enjoys significant tax incentives and could become a major contributor to Oil India’s earnings in the coming years.Watch accompanying video for moreDisclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
