Synopsis : Easing geopolitical tensions in the Middle East and a sharp decline in crude oil prices are improving the outlook for India’s oil marketing companies. Global brokerage Jefferies remains bullish on BPCL and IOCL, citing stronger refining margins, narrowing fuel marketing losses, and attractive valuations after the recent correction.
India’s oil marketing companies (OMCs) may be entering a more favorable phase after months of uncertainty caused by geopolitical tensions and volatile crude oil prices.
According to global brokerage Jefferies, the recent easing of tensions in the Middle East has significantly improved the risk-reward profile for select state-owned energy companies. As a result, the brokerage has reiterated its ‘Buy’ rating on Bharat Petroleum Corporation (BPCL) and Indian Oil Corporation (IOCL).
Why Jefferies Remains Positive
The brokerage believes that falling crude oil prices, stronger refining margins, and improving fuel marketing economics could support earnings recovery for OMCs over the coming quarters.
BPCL remains Jefferies’ top pick with an estimated upside potential of around 37%, while IOCL offers a potential upside of approximately 24%.
The optimism comes after both stocks witnessed a sharp correction during the recent Middle East conflict. According to Jefferies, BPCL and IOCL have declined significantly since the start of the geopolitical escalation, creating an attractive entry opportunity for long-term investors.
Lower Crude Prices Could Boost Profitability
One of the biggest positives for oil marketing companies is the recent correction in global crude oil prices.
Brent crude has retreated from elevated levels as concerns around prolonged supply disruptions have eased. Since India imports the majority of its crude oil requirements, lower crude prices typically reduce cost pressures and improve profitability for fuel retailers.
Jefferies expects further normalization in energy markets if geopolitical stability continues, creating a supportive environment for the sector.
Marketing Losses Are Shrinking
Another major improvement highlighted by the brokerage is the sharp reduction in fuel marketing losses.
Higher crude prices had previously squeezed margins on petrol and diesel sales. However, as oil prices have cooled, these losses have narrowed considerably.
Jefferies believes that if crude prices remain near current levels and freight costs normalize, fuel marketing profitability could return to healthy levels. In such a scenario, marketing margins may move above long-term normative levels, providing an additional earnings tailwind.
Refining Margins Remain Strong
While crude oil prices have softened, refining margins continue to stay elevated.
According to Jefferies, disruptions to global refining capacity during the conflict have helped support refining profitability. Singapore Gross Refining Margins (GRMs) remain significantly higher than historical averages, benefiting refiners such as BPCL and IOCL.
The brokerage expects these favorable refining economics to persist in the near term as global supply chains gradually normalize.
A Potential Policy Risk to Watch
Despite the improving outlook, Jefferies highlighted one potential risk.
Earlier, the government had reduced excise duties on petrol and diesel to support oil marketing companies. If profitability improves substantially, policymakers may consider increasing excise duties again to partially offset previous reductions.
Investors should therefore keep an eye on any policy announcements related to fuel taxation.
What Comes Next?
According to Jefferies, the direction of crude oil prices and shipping activity through critical trade routes such as the Strait of Hormuz will remain key variables for the sector.
If energy markets continue to stabilize and crude prices remain contained, BPCL and IOCL could be among the biggest beneficiaries within the PSU energy space.
Disclaimer : This article is for informational and educational purposes only and should not be considered investment advice. Stock ratings, target prices, and market views mentioned are based on publicly available brokerage research and may change without notice. Investors should conduct their own research and consult a SEBI-registered financial advisor before making any investment decisions. Equity investments are subject to market risks, including loss of capital.
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