Indian standalone refiners face the challenge of margin compression caused by the sudden re-introduction of export duties. On March 27, 2026, the Indian government re-instated windfall taxes of ₹21.5 per litre on diesel and ₹29.5 per litre on Aviation Turbine Fuel (ATF), while announcing the cut in excise duty by ₹10 per litre on both petrol and diesel with immediate effect.
According to industry observers, the benefits from cut in excise duties on both petrol and diesel to support oil marketing companies (OMCs), is likely to be offset by the windfall tax on export of diesel and ATF due to dip in refining margins and the mandate to produce more liquified petroleum gas (LPG).
OMCs are already facing significant losses due to the surge in crude oil prices, while there has been no increase in retail prices. Analysts estimate the marketing margins of the OMCs may continue to be negative despite the duty cuts.
Benchmark Singapore Gross Refining Margins (GRMs), which had briefly surged to multi-year highs earlier this month, have now collapsed into negative territory after peaking at around $40-45 per barrel in early March. The sharp decline reflects a rapid shift from initial supply-driven gains to structural stress across the refining sector.
GRM is the primary indicator of a refinery’s profitability, representing the difference between the total value of the petroleum products produced (like petrol, diesel and ATF) and the price of the raw crude oil used to make them.
While complex refiners in India may have some flexibility to optimise crude slates and product yields, the broader trend also points toward margin compression and earnings volatility.
Double whammy
In a note, Motilal Oswal Financial Services, said that refining profitability may be lower than what headline GRMs suggest due to higher fuel loss at complex refineries and a sharp rise in the freight costs of very large crude carriers. It pointed out that export tax calculations were likely based on GRMs over Brent, “whereas crude sourcing currently often involves paying a premium.”
Nikhil Dubey, Senior Refinery Modeling Analyst, Kpler, said that for refiners, the current government decision is a double whammy. “My understanding is that, in addition to maximising FCC (fluid catalytic cracking) runs, some of the C4 stream that was previously used for gasoline blending or for producing premium blend-stocks such as alkylate, is now being routed into the domestic LPG pool,” he said.
A Nomura analyst estimated that Reliance Industries would see a negative impact of $8.7/barrel on its GRM, assuming no windfall tax on its SEZ refinery. The 2022 norms exempted SEZ exports, and according to reports, the situation remains the same. However, industry sources said “no formal” communication has come as yet.
Reliance Industries, Nayara Energy and Mangalore Refinery lead the exporters.