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Informist, Friday, Mar. 7, 2025

MUMBAI - The near-term outlook for shares of Indian oil marketing companies looks positive due to falling global crude oil prices. However, this could be offset by growing liquefied petroleum gas under-recoveries of around INR 250 per cylinder, analysts said. This week, prices of crude oil fell sharply and are currently trading around $70 per barrel. At 1820 IST, Brent crude May futures traded on the Intercontinental Exchange were up 1.4% from Thursday at $70.44 per barrel, but lower than last week's closing level of $72.81 per barrel.

In the near term, crude oil prices are likely to fall due to US tariff threats, potential oversupply of the fuel, and weak global demand, analysts said. Prices started to fall after eight member nations of the Organization of the Petroleum Exporting Countries and its allies decided to proceed with gradual unwinding of the voluntary production cuts from Apr. 1. This came as a positive surprise as market participants had expected the cartel to further delay raising the output, analysts said. The cartel agreed to roll back the voluntary 2.2 million barrels per day of oil production cut imposed in November 2023 gradually and flexibly starting from April.

"It appears pressure from the Trump (US President) administration to keep prices lower has won out. Given the market was largely expecting another delay, oil prices are likely to remain under downward pressure," Daniel Hynes, senior commodity strategist at ANZ Research, said in a note. A global trade war will potentially lead to derailment of global economic growth, due to which the demand for global crude oil will reduce, analysts said. The possibility of more oil coming into the market from Iraq has also been a drag on crude prices. Oil exports from Iraq's Kurdistan region, amounting to around 300,000 barrels per day, could resume this month through the Ceyhan pipeline.

For India, crude oil imports from Russia no longer offer a cost advantage due to harsher sanctions imposed by the US and higher logistical costs. The government is likely to cut its oil imports from Russia by half, and make up the shortfall with an increase in imports from West Asia, Informist reported Thursday citing sources. The plan, currently in the works, will reduce India's oil imports from Russia to 900,000 barrel per day, while pushing up imports from West Asia to 3.5 million barrels per day, a senior finance ministry official had told Informist.

For oil marketing companies, a fall in crude prices is a positive, but price cuts and excise hike concerns will surface, coupled with heavy near-term inventory losses, Emkay Global Financial Services said Wednesday in its report. With oil prices hovering around $70 per barrel, the oil marketing companies are back in a sweet spot with diesel and petrol gross marketing margins at INR 8 and INR 12, respectively. This rise in gross marketing margins could offset the LPG under-recoveries, the brokerage said.

However, a fall in crude prices could hit realisations of major upstream players--such as Oil and Natural Gas Corp. and Oil India. However, shares of these two companies are among the cheapest on the global front, trading at 60-70% discounts compared to the global average and well above their historical discount of 30-35%, Antique Stock Broking said in its report early this week. Both the upstream companies have good production outlook for the next 1-3 years, JM Financial said in a research report. However, if the crude prices fall below $70 per barrel, it could negatively impact earnings of these players. Every $5 per barrel decline in net crude realisation will result in a decline of 8-12% in 2025-26 (Apr-Mar) earnings per share estimate for these companies, the brokerage said.

Though most of its constituents closed lower, rise in heavyweight Reliance Industries pushed Nifty Oil & Gas index 0.6% higher at 10101.50 points on Friday. The index rose 5.3% this week. The rise of Reliance Industries came after some broking firms retained their 'buy' rating on the stock. All oil stocks rose this week, with Bharat Petroleum Corp., Hindustan Petroleum Corp., and Indian Oil Corp. being the outperformers, registering double-digit rise.

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* India readies plan to halve Russian oil import, looks to West Asia - Sources
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* IOC raises 19-kg LPG cylinder price by INR 6 to INR 1,803 in Delhi
* IOC cuts ATF price by INR 222/kl to INR 95,311.72/kl in Delhi
 

Following are the resistance and support levels for the sector's key stocks for next week, as per calculations based on their prices on the National Stock Exchange:

End

Reported by Akshay V. Johnson
Edited by Ashish Shirke

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