Refining margins: WoodMac flags India GRM squeeze 2026

A sharp weekly spike, but a tougher medium-term picture

Refining margins for gasoline and diesel jumped this week to new record highs after renewed escalation in the Middle East, Russia’s ban on diesel exports, and weakening global fuel inventories. The move has been reflected in “super-high crack spreads” across key markets, pointing to near-term tightness in refined products. But Wood Mackenzie’s Asia Pacific Refining Outlook for Q1 2026 argues that Indian refining profitability is moving in the opposite direction structurally.

For Indian oil marketing companies (OMCs) and refiners, the core issue is not whether cracks can spike during disruptions. It is whether average margins can be defended as demand patterns change and crude supply risks remain elevated. Wood Mackenzie’s outlook puts that concern into numbers, laying out a three-scenario path for gross refining margins (GRMs) through 2028.

Wood Mackenzie’s core finding on India’s GRM trend

Wood Mackenzie says India’s GRM has compressed from a peak of $11.2/bbl in FY23-24 to $1.8/bbl in FY25-26. The firm’s key message is that the drivers of compression are “not cyclical” but directional. That framing matters because it implies that short bursts of high cracks may not restore profitability to earlier peak levels.

The outlook also links the current margin environment to product-specific strength, particularly jet fuel. Sushant Gupta, Research Director, Asia Pacific Refining and Oils at Wood Mackenzie, notes that demand for jet fuel is boosting refining margins. At the same time, he cautions that crude oil shortages could reduce production across Asia, which would feed volatility in both crude differentials and product cracks.

Three GRM pressure scenarios for Indian OMCs through 2028

Wood Mackenzie maps three scenarios for Indian refiners through 2028, each defined by a different mix of crude sourcing flexibility, demand shifts, and refinery complexity.

1) Managed compression

In the “managed compression” scenario, crude arbitrage opportunities from diversified sourcing such as Russia, the US, and Africa partially offset narrowing crack spreads. In this case, GRM stabilises at $1 to $1 per barrel. Wood Mackenzie describes it as manageable, but with a thin margin for error.

2) Structural squeeze

The “structural squeeze” scenario is driven by faster-than-forecast EV adoption in two-wheelers. Wood Mackenzie’s framing is that petrol demand peaks by 2027, while middle distillate demand holds up but aviation fuel margins compress. Under this scenario, GRM slides to $1 to $1 per barrel, and several refiners dip below breakeven.

3) Transformation pathway

In the “transformation pathway”, Wood Mackenzie highlights refiners that have invested in secondary processing like hydrocracking and delayed coker upgrades, plus energy efficiency and non-fuel revenue diversification. These players are modelled to defend GRM at $1 to $1 per barrel, with a widening structural gap versus peers.

Jet fuel and diesel cracks show how tightness gets priced

The outlook describes extreme tightness risks in refined product markets, visible in elevated cracks. It cites jet-fuel cracks in Northwest Europe trading at $100/bbl and diesel cracks at $10/bbl, described as four to five times pre-war levels.

Alongside cracks, the report text also links the macro oil balance to potential price pressure. It states that global oil demand of 105 million b/d “will still have to fall to balance the market” and that this may require Brent to rise to at least $150/bbl in the coming weeks. It adds that $100/bbl is “not outside the realms of possibility in 2026.” These statements underline how product and crude markets can reprice sharply when supply risks rise.

India’s crude vulnerability: Middle East dependency and low emergency stocks

Sushant Gupta adds a specific risk point for India: “Without Russian crude, India’s dependency on Middle East crude exceeds 80% of the total import.” That dependency becomes more critical when the region faces supply or shipping disruptions.

Wood Mackenzie also notes that India’s emergency crude stockpiles are among the lowest in the region. In that context, Indian refiners are expected to lower utilisation rates by around 12%, reducing crude runs by approximately 600,000 b/d, as they struggle to replace Middle Eastern barrels.

The firm’s analysis also presents a separate assumption where refiners can access emergency stockpiles, laying out the impact on crude runs for April 2026. Under that scenario, India sees a crude run impact of 400 kb/d (about an 8% utilisation decline), while China sees 750 kb/d (about a 4% utilisation decline), despite adequate stock levels.

Exports and throughput: what the Reuters snapshot adds

A Reuters dateline from Delhi (September) adds a near-term operational angle. It says Indian refiners are ramping up and exporting diesel to the highest levels in years, supported by enhanced crude processing capabilities and higher domestic ethanol blending, which frees up fuel for international markets.

The same report says India’s crude processing is expected to rise 130,000 to 160,000 barrels per day, reaching approximately 5 million bpd, with exports expected to hit a record of around 400,000 bpd, citing Wood Mackenzie. It also notes that refiners including Reliance Industries and MRPL are increasing exports to benefit from strong gasoline margins in Asia, described as up 51% since the start of the year to around $11 to $12 per barrel.

On diesel-range exports, Wood Mackenzie forecasts India’s gasoil exports will reach 610,000 to 630,000 bpd by 2025, while Kpler estimates 560,000 bpd.

Capacity growth constraint and the longer-run import risk

Wood Mackenzie also flags the difficulty of expanding domestic refinery capacity fast enough to match demand. In its base case, India adds 1.2 mmbbl/d of refining capacity over the next decade. But to avoid growing dependence on imported oil products in a high-growth scenario, the report says capacity additions would need to triple by 2033.

This matters for margins because capacity constraints can raise domestic product tightness, but they can also limit flexibility when export economics weaken. The same outlook warns that simpler refining configurations in Asia and Europe may cut utilisation rates when margins come under pressure.

What the April 2023 margin unwind says about the cycle

The text also provides a reminder that refining profitability can mean-revert quickly. It notes that refining margins rose to almost 10 times the five-year average, but then began “unwinding”, with fuel markets tumbling back toward pre-war levels. Wood Mackenzie’s global composite refining margin for April 2023 is described as falling to the upper end of the five-year range, down 70% from the peaks of 2022, and at times dipping below the five-year historical average for the first time since the invasion.

It adds that over the next 18 months, available capacity should broadly balance expected demand growth, meaning margins stabilise in their historical range, potentially trending below average into 2024. High Middle East official selling prices are described as compounding the squeeze for buyers of medium and sour crudes.

Key figures at a glance

Market impact: why these scenarios matter for Indian refiners

In the near term, elevated gasoline and diesel margins can support export economics, especially when Asian gasoline margins are quoted at $11 to $12 per barrel. But Wood Mackenzie’s scenario map suggests that average GRM outcomes through 2028 depend more on structural demand and refinery complexity than on short-lived disruptions.

The report’s supply-risk discussion adds another layer. If the ability to secure non-Middle East barrels is constrained, utilisation cuts become a direct earnings risk. The cited expectation of a 12% utilisation reduction and a 600,000 b/d cut to crude runs illustrates how quickly operational throughput can be affected when replacement cargoes are hard to source.

Analysis: a widening gap between complex and simple configurations

The scenarios imply that Indian refiners could diverge sharply in performance. A pathway where margins can be defended at $1 to $1 per barrel is linked explicitly to secondary processing upgrades and diversification beyond fuel revenues. The alternative structural squeeze case ties margin deterioration to a demand mix shift, with petrol demand peaking by 2027 in the scenario and aviation margins compressing.

Separately, the report’s comments on crude dependency and low emergency stockpiles highlight a resilience issue, not just a pricing issue. When crude supply is disrupted, refiners with flexible crude slates and higher conversion capacity are better placed to sustain product yield and crack capture, while simpler refiners face tougher trade-offs between utilisation and profitability.

Conclusion

Wood Mackenzie’s Q1 2026 outlook combines today’s tight crack spreads with a warning that India’s GRM has already fallen from $11.2/bbl to $1.8/bbl, and could compress further depending on demand shifts and refinery competitiveness. The report’s 2028 scenarios frame a clear divide between managed compression, a structural squeeze, and a transformation pathway built on complexity and diversification. The next key signposts will be crude sourcing conditions, utilisation decisions, and how export flows evolve as Asian and European maintenance cycles tighten product availability.