Reliance Industries could sustain strong refining profitability in the October–December quarter of FY27, supported by tight global fuel supplies, elevated refining margins and its ability to source discounted crude oil. The outlook follows a record performance by the company’s oil-to-chemicals (O2C) business in the September quarter, when higher fuel prices and disruptions to international supply chains created favourable conditions for refiners.
However, rising shipping and insurance expenses remain a significant challenge. Analysts expect higher very large crude carrier (VLCC) freight rates to put pressure on refining margins in Q3. Reliance may partly offset these expenses by processing discounted heavy crude grades, diversifying its suppliers and redirecting fuel exports towards markets offering better returns.
Reliance Reports Record Q2 FY27 Refining Performance
Reliance Industries delivered a strong performance in Q2 FY27, with its O2C business emerging as a major contributor to earnings growth.
The segment’s revenue increased 44.2% year-on-year to ₹2.32 lakh crore, while earnings before interest, tax, depreciation and amortisation (EBITDA) rose 67.9% to a record ₹25,203 crore.
The EBITDA margin expanded by 160 basis points to 10.9%, reflecting stronger refining economics and improved profitability across parts of the downstream business.
| O2C performance | Q2 FY27 |
|---|---|
| Revenue | ₹2.32 lakh crore |
| Revenue growth | 44.2% year-on-year |
| EBITDA | ₹25,203 crore |
| EBITDA growth | 67.9% year-on-year |
| EBITDA margin | 10.9% |
| Margin expansion | 160 basis points |
Reliance’s consolidated net profit also increased 40.6% year-on-year to ₹25,548 crore for the quarter ended September 30, 2026, according to Reuters.
The strong results reflected record crude processing, improved refining and petrochemical margins, and robust domestic demand.
Global Refining Margins Remain the Biggest Growth Driver
The international refining environment was unusually favourable during the September quarter.
Geopolitical tensions, disruptions to crude transportation and reduced availability of refined petroleum products tightened global fuel supplies. These developments increased the difference between the prices of refined products and the crude oil used to produce them.
This difference is known as the refining crack spread. Higher crack spreads generally improve refinery profitability, although the actual benefit depends on crude procurement costs, product mix, operating expenses and transportation.
According to the Moneycontrol report, transportation-fuel cracks increased approximately three to 3.7 times compared with the year-earlier period, reaching historic highs during the quarter.
The increase was particularly visible in gasoline, diesel and aviation fuel.
Global refinery outages and restrictions affecting Russian fuel exports also contributed to tighter product availability. As a result, refiners with the ability to process different crude grades and sell products across multiple markets benefited from stronger pricing conditions.
Nomura attributed Reliance’s record quarterly performance partly to multi-decade-high refining cracks. The brokerage noted that the company’s consolidated EBITDA increased 19% sequentially and exceeded its estimates by 9%, largely because of the O2C business.
Why Discounted Heavy Crude Could Support Q3 Margins
One of the key factors in Reliance’s Q3 outlook is its ability to purchase discounted crude oil.
Crude prices alone do not determine refinery profitability. The delivered cost of oil also includes transportation, insurance and other expenses associated with bringing crude to the refinery.
A cheaper crude grade may therefore remain commercially attractive even when shipping costs increase, provided the purchase discount is large enough to compensate for the additional expenses.
Goldman Sachs expects higher VLCC freight costs to moderate Reliance’s refining margins in Q3. However, it believes that processing discounted heavy crude could partly offset the pressure.
Heavy crude generally has a higher density and may contain more sulphur than lighter grades. Refineries equipped with complex processing units can convert these grades into valuable fuels and other petroleum products.
Reliance operates one of the world’s largest and most complex refining facilities at Jamnagar in Gujarat. Its processing capabilities provide flexibility to handle different crude grades and optimise the product mix according to market conditions.
This flexibility is important when geopolitical developments change the relative prices of crude supplies from different regions.
Reliance Diversifies Crude Sourcing Amid Shipping Disruptions
Reliance adjusted its crude procurement strategy during the July–September quarter as disruptions around the Strait of Hormuz and tighter Middle Eastern supplies affected traditional trade routes.
The company sourced crude from multiple regions, including:
- Latin America
- North America
- The Mediterranean
- The Middle East
This diversification helped Reliance maintain high refinery utilisation despite disruptions to conventional supply chains.
The company also redirected petroleum product exports towards destinations offering better commercial returns. Light distillates were shipped to East and South Africa, while middle distillates were directed towards Europe, Latin America and West Africa.
According to the company’s disclosures reported by The Economic Times, Reliance also supplied low-sulphur aviation turbine fuel to South Africa for the first time, creating a potential additional export opportunity.
The strategy demonstrates that crude procurement and product exports are closely connected. Refiners must consider not only where they can purchase oil at competitive prices but also where finished fuels can generate the strongest returns.
Higher Freight Costs Remain a Major Risk
Despite the favourable refining environment, shipping expenses have increased significantly.
The Strait of Hormuz is an important route for global crude oil transportation. Disruptions and higher security risks have affected tanker availability, insurance expenses and shipping costs.
Indian refiners have consequently faced higher delivered crude costs, even when purchasing discounted oil.
Indian Oil chairman A S Sahney recently highlighted the problem, saying that freight costs were eroding the benefits of discounted crude purchases. He also called for India to expand its shipping capabilities to reduce dependence on external tanker capacity.
Reliance has responded by adjusting its sourcing and transportation strategy. The Economic Times reported that the company deployed more than 20 vessels, with its total crude and petroleum-product vessel fleet approaching 25, to manage the impact of higher freight rates.
However, transportation costs remain an important variable for Q3 profitability. If freight rates rise faster than crude discounts, the savings from cheaper feedstock could be reduced.
Petrochemicals Business Also Receives a Boost
Reliance’s O2C performance was not driven by refining alone. Its petrochemicals business also benefited from improved product spreads.
Polyester-related margins reached a three-year high during the September quarter.
Paraxylene spreads increased 15%, while purified terephthalic acid (PTA) spreads rose 52%.
Paraxylene and PTA are important raw materials in polyester production. Higher spreads can improve profitability for companies operating across these parts of the petrochemical value chain.
The improvement provides an additional source of support for Reliance’s O2C business, although petrochemical profitability remains exposed to changes in global demand, raw material prices and manufacturing capacity.
Reliance Shares Rally After Strong Q2 Results
Reliance Industries shares surged as much as 8.1% to ₹1,259 on November 2, following the company’s strong September-quarter results. This was its biggest intraday gain in at least three years, according to Moneycontrol.
The rally pushed the company’s market capitalisation above ₹17 lakh crore.
Brokerages also maintained positive views on the stock. Goldman Sachs retained its Buy rating with a target price of ₹1,840, while Nomura maintained a Buy rating with a target of ₹1,560, according to the Moneycontrol report.
These are brokerage estimates, not guaranteed future share prices. The investment outlook will depend on refining margins, crude sourcing costs, petrochemical spreads and performance across Reliance’s other businesses.
The Bigger Picture
Reliance’s refining performance highlights how integrated energy companies can benefit from disruptions in global oil and fuel markets when they have flexible procurement, complex refining facilities and access to multiple export destinations. Strong fuel demand and limited product supplies have created favourable refining conditions, while discounted crude grades offer an opportunity to protect margins against higher shipping expenses.
However, the current earnings environment is also influenced by geopolitical developments that can change quickly. Higher freight rates, insurance costs and crude premiums could reduce the benefits of strong product prices. The company’s ability to maintain profitability will therefore depend on the balance between crude discounts, transportation expenses and realised fuel prices rather than refining margins alone.
Looking Ahead
Reliance’s Q3 performance will depend on whether global fuel supplies remain tight and whether the company can continue sourcing competitively priced crude. Its diversified supplier network, complex refining infrastructure and ability to redirect exports provide operational flexibility, but analysts are watching freight costs closely as a potential constraint on margins.
Investors will also monitor the direction of gasoline, diesel and aviation fuel cracks, along with petrochemical spreads and crude procurement costs. If discounted heavy crude continues to offset higher transportation expenses, Reliance’s O2C business could sustain relatively strong earnings. However, a moderation in global refining margins would make the comparison with its exceptional Q2 performance more challenging.
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