India, June 23 -- Profitability at state-run oil marketing companies (OMCs) is set to improve as falling crude oil prices lift fuel marketing margins, although rising debt levels and uncertainty over fuel taxes could limit the sector's longer-term earnings outlook, according to a JP Morgan report.

Composite margins on petrol and diesel sales at state-run refiners and fuel retailers are now above levels seen before the recent Middle East conflict, with gains driven by lower crude prices and reduced central excise duties, it said.

The start of the West Asia conflict triggered a surge in global oil prices but retail pump rates in India remained steady for large parts and rising only by a fraction of the required increase. Even after the Rs...