Trade wars fuelled by US President Donald Trump, coupled with OPEC+ reversal of voluntary production cuts, have dragged down crude oil prices to around $70 a barrel, a development that bodes well for downstream firms, but may impact margins of upstream companies.
According to the industry and analysts, global markets are under pressure over concerns on crude oil demand as the tariff wars and output ramp up from OPEC+ are impacting prices with Brent slipping below $70 a barrel on Tuesday, the lowest since September 2024.
OMCs such as Indian Oil Corporation (IoCL), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) benefit if crude oil prices are below $75 per barrel. On the other hand, a price range of $75-80 a barrel is the sweet spot for upstream players like ONGC and Oil India (OIL), they added.
Crude oil prices weakened for the third day on Wednesday with growing concern over escalating tariff wars between the US, Canada, Mexico, China and India raising fears of slower global economic growth. Brent was trading at $70.17 per barrel in the evening.
OPEC+ is effecting a gradual rollback of the 2.2 million barrels per day (mb/d) voluntary production cut from April 2025 up to September-December 2026.
OMCs benefit
Analysts said that crude oil prices sustaining at $70-71 per barrel levels will have a positive impact on marketing margins of OMCs.
Besides, there is enough spare capacity available globally, including in the US and other non-OPEC producers, which is expected to keep prices in the low $70 a barrel range, they added.
As per Emkay Global Financial Services, $70 per barrel oil brings OMCs back to the sweet spot with CP diesel and petrol gross marketing margins at ₹8 a litre and ₹12 per litre, respectively. It offsets the around ₹250 per cylinder of LPG under-recoveries, which can fall further with upcoming summer seasonality.
“Hence, OMCs can report strong earnings like Q3 FY25. While Q4 FY25 still seems weak, some LPG subsidy (we have assumed ₹20,000 crore) can come given comments from the Petroleum Minister, Secretary and OMCs themselves, which along with any hike in LPG prices can be material triggers,” it added.
However, the brokerage said that upstream earnings, which are pegged at $75 a barrel net oil realisation decline 6-9 per cent with NWG (new well gas) realisations also getting hit.
“January production data are encouraging with ONGC’s operated oil output up around 1.5 per cent Y-o-Y, led by KG 98/2 and Oil India’s gas production up 7 per cent, though crude output growth was still lower at around 1 per cent Y-o-Y,” it added.
Lower oil prices impact GAIL’s petrochemicals business, where realisations 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 per mBtu. However, GAIL’s valuations seem reasonable and the upcoming pipeline tariff hike is a key trigger,” Emkay added.