Two headlines you will see this week: "oil company revenues surge on crude spike" and "FIIs dump oil and gas stocks". Readers will ask how both can be true. The answer is one of the most useful things to understand about this sector, and it takes five minutes.
Where things stand
Brent crude is near $107 a barrel after six straight days of gains, up from around $80 in the spring. The rupee has slipped to about 95.5 to the dollar, so a barrel costs India more in rupees than the dollar move alone suggests. The US 10-year yield is near 5% and the Fed meets this week.
Foreign investors have already voted. In the NSDL fortnight to 31 August, foreign portfolio investors were net sellers of ₹2,251 crore in Oil, Gas and Consumable Fuels, the largest sector outflow of the fortnight, while buying ₹5,019 crore of consumer services. That is the sector view before crude got to $107. It is unlikely to have softened since.
And yet, when the September quarter numbers arrive, almost every listed oil and gas company will report higher revenue than a year ago. Both facts are correct. The confusion comes from treating revenue and profit as the same thing.
Revenue is price times volume. Profit is what is left
An oil marketing company sells litres. Its revenue is litres sold multiplied by the price per litre. When crude jumps, the value of everything it sells goes up: the petrol and diesel it retails, the product it sells to bulk buyers, the inventory sitting in its tanks. Volumes barely move; India does not drive less because Brent rose. So revenue rises almost mechanically.
Profit is a different calculation. It is what is left after the company pays for the crude it buys. If the cost of crude rises by ₹6 a litre and the selling price rises by ₹6 a litre, revenue is up and profit is unchanged. If the cost rises by ₹6 and the selling price rises by zero, revenue is still up, and profit collapses.
That second case is the one that matters in India, because the retail price of petrol and diesel is not set by the market. It is managed. Pump prices have not moved this cycle. So IOC, BPCL and HPCL are paying $107 for crude and selling the refined product at a price fixed when crude was much lower.
Company by company
| Type | Examples | Revenue when crude rises | Profit when crude rises | Why |
|---|---|---|---|---|
| Oil marketing (refine and retail) | IOC, BPCL, HPCL | Up | Down, can turn to losses | Buy crude at market, sell fuel at a managed pump price. The gap comes out of margin |
| Upstream producers | ONGC, Oil India | Up | Up, but not fully | They sell crude at world prices, so realisations rise directly. The government has taxed these gains before and can again |
| Integrated refiner | Reliance | Up | Roughly balanced | Refining margins tend to widen with crude, feedstock is flexible, and the petrochem and retail businesses cushion it |
| Gas | GAIL, Petronet LNG, city gas distributors | Up | Mixed | Long-term LNG contracts are priced off crude, so input costs rise with a lag. Whether it passes through depends on the customer and the contract |
Within the marketing companies, exposure differs. Business Today notes that HPCL refines only about 51% of what it sells, against roughly 74% for BPCL and 80% for IOC. The less you refine yourself, the more product you buy at market prices to sell at a fixed one, so HPCL is the most exposed to a crude spike with frozen pump prices, and IOC the least.
Why the FIIs are selling
Put the pieces together and the foreign selling is not a contradiction. It is the profit line being priced.
First, the margin squeeze at the marketing companies, which are the largest and most liquid names in the sector index. Every day crude stays above $100 with pump prices frozen, the under-recovery accumulates.
Second, the rupee. A weaker rupee raises the rupee cost of every imported barrel even if Brent does not move. For a foreign investor it also cuts the dollar value of whatever rupee profit the company does make. Oil and gas is the sector where both effects land on the same income statement.
Third, policy risk on the upside. When crude spiked in 2022, the government introduced a windfall levy on domestic crude production and on fuel exports, and adjusted it fortnightly for two years. Upstream producers are the natural beneficiaries of $107 crude, and they are exactly the companies whose gains the government has clawed back before. A foreign investor buying ONGC for the crude upside has to price the chance that the upside is taxed.
So the trade is: revenue up across the sector, profit down at the marketing companies, profit up but politically exposed at the producers, and a currency that hurts everyone. Foreign investors sell the sector as a whole because the index is dominated by the losers and the winners come with a policy discount.
What would change the picture
Three things, in order of importance.
A pump price increase. This is the single largest swing factor for IOC, BPCL and HPCL. When prices were raised and crude fell in May, HPCL rose 6% in a day and the other two 4 to 5%. The reverse is what the market fears now. Watch for any move, even a small one, as a signal that the government will let margins recover.
Crude itself. The sector's problem is a level, not a direction. Brent back below $90 with the rupee stable would take most of the pressure off without any policy action.
A windfall levy announcement, or its absence. If crude stays above $100 for weeks and no levy appears, ONGC and Oil India keep the full benefit. If one appears, the upstream trade is capped.
The simple version
When crude rises, oil companies sell the same litres for more money, so revenue goes up. But most of them cannot raise the price they charge you at the pump, so they pay more for what they sell and keep less. Revenue is the top of the income statement. Investors, foreign or domestic, buy the bottom.
Educational purposes only, not investment advice. DYOR.
Sources: NSDL fortnightly sector-wise FPI investment data (16 to 31 August 2026); NSE daily FII/DII provisional data; Business Today, "Brent oil nears $110: RIL, HPCL, IOC, BPCL, Petronet LNG, MGL, ONGC, GAIL, Oil India shares, impact explained" (11 September 2026) for refining-to-marketing ratios and brokerage views; Business Today (25 May 2026) on the OMC rally after the pump price increase; market data on Brent, the rupee and US yields as of 15 September 2026; government notifications on the 2022 to 2024 windfall levy.
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