HPCL, BPCL, ONGC, IOC, GAIL, Oil India shares: Oil below $70; stocks to watch

The recent drop in Brent crude futures below $70 a barrel mark can be positive for oil marketing companies such as BPCL, HPCL and IOC, but negative for upstream companies such as ONGC and Oil India, oil & gas analysts said.

For companies such as HPCL, BPCL and IOC, every $1 a barrel reduction in product prices raises retail fuel margins by Re 0.5 per litre. ICICI Securities said the recent $4–5 a barrel dip in product prices raises blended retail margins by over Rs 2.5 per litre – a material positive for OMCs.

On Thursday, shares of HPCL were trading 4.21 per cent higher at Rs 340.20. BPCL advanced 1.97 per cent to Rs 260.95. IOC also gained 2.04 per cent to Rs 124.75.

"Our calculations also suggest meaningful earnings upsides to OMCs’ EPS from lower product prices and higher retail margins. We note that assumptions of GRMs should factor in the subdued demand scenario and volatile economic conditions while a linear downward move in crude can also raise inventory losses, which are not baked into the estimates yet," it said.

JM Financial believes Brent may stabilise around $70 a barrel, otherwise it could hurt US shale oil capex and lead to steep rise in Saudi Arabia’s fiscal deficit.

It has lowered its Brent price assumption from $75 a barrel for FY26 and FY27, resulting in 7-9 per cent cut in PAT estimates for ONGC and Oil India Ltd for FY26 and FY27 PAT.

Shares of ONGC were trading 0.89 per cent lower at Rs 227.10. Oil India shares fell 0.26 per cent to Rs 367.25. GAIL India rose 1.42 per cent to Rs 161.20.

"However, we maintain BUY on ONGC/Oil India given robust 12 per cent/25 per cent production growth outlook in the next 1-3 years, and our expectation of Brent likely to be supported $70/bbl; Oil India also benefits from NRL capacity expansion. We maintain our cautious view on OMCs though risk-reward is more balanced now after recent share price correction and fall in oil prices," it said.

Emkay Global said upstream earnings are likely to be hit but ONGC and Oil India shares have already corrected, and given a weaker rupee, standalone earnings cut should not be more than 6-9 per cent each.

"GAIL Ltd can also see a 5-6 per cent cut due to impact on petchem and US LNG marketing. The brokerage stayed constructive on OMCs, upstream, and GAIL -- in that order, with valuations being attractive currently," it said.

"Lower oil prices impact GAIL’s petchem business, where realizations are oil linked, and given that feedstock is gas with US LNG and spot, both being steady. Also, US LNG sold at oil-linked pricing in India would see spreads shrink as Henry Hub hovers at $4.4/mmBtu. However, GAIL’s valuations seem reasonable and the upcoming pipeline tariff hike is a key trigger," it said.

On city gas distributors (CGDs), JM Financial said spot LNG has been trading higher at 18 per cent of Brent against an historical average of 12 per cent. A sustained high spot LNG price is a key concern for all gas companies in India as it could impact domestic LNG demand, and volume/margins of CGD companies -- particularly for Gujarat Gas as it has high 20-30 per cent dependency on spot LNG, amidst moderate price of competing fuel propane, and also of Petronet LNG, GAIL and GSPL.