What’s the highway forward for the ailing Oil & Fuel sector? Analysts decode

The oil and fuel trade in India is grappling with a posh disaster pushed by international financial challenges, ineffective coverage frameworks, and widespread structural points inside the sector. The Nifty Oil & Fuel sector indices have fallen by 27% since August 2024. Following a peak intraday excessive of 13,607.20 on September 2, 2024, the sectoral indices have been on a downward slope.

Out of the 15 shares within the Nifty Oil & Fuel, solely Indraprastha Fuel (surged by 26.5%), Mahanagar Fuel (rose by 13.9%), and Castrol (up by 9.5%) have proven constructive efficiency over the past three months, whereas the remaining 12 shares have recorded losses.

Among the many laggards, Oil India leads with a decline of 27%, adopted by GAIL with a drop of 16.3%, Gujarat State Petronet at 16%, and Gujarat Fuel at 14.4%. Hindustan Petroleum Company Ltd (HPCL)has decreased by 13.5%, whereas Bharat Petroleum Company Ltd (BPCL) is down 12.9%, and Indian Oil Company has fallen by 10.3%. Adani Complete Fuel, Reliance Industries, Petronet LNG, Aegis Logistics, and Oil and Pure Fuel Company (ONGC) have skilled losses starting from 4% to 9%.

“From the September 2024 swing highs of 13,600, we’ve got seen a significant sell-off on this basket, shedding round 28%. Costs have now approached an important help of 61.8% retracement of the key rally seen from the degrees of seven,400. As of now there isn’t a bullish reversal indicators however 9800 is essential make or break degree level. For a bullish affirmation Costs might want to shut above 10,200 that might set off a constructive momentum in the direction of 10,600,” stated Rajesh Bhosale, Fairness Technical and Spinoff Analyst at Angel One.

Sure Securities, in a latest evaluation, identified that in mild of the unfavorable situations—corresponding to stagnant crude costs, declining refining margins, rising LPG subsidy pressures, and deteriorating capital expenditure efficiencies—the brokerage feels it needed to think about each bear-case and worst-case situations for the principle gamers within the sector. In response to their assessments of fundamentals and valuations, their high picks embody HPCL, BPCL, Mahanagar Fuel, GAIL, and ONGC.

Altering crude and product unfold macros

In a latest report launched by Sure Securities, it was famous that at first of January, Brent crude costs climbed above USD82/bbl resulting from considerations relating to new US sanctions on Russia; nonetheless, costs later retreated to USD75/bbl as satisfactory demand help was missing.

Regardless of ongoing geopolitical uncertainties, the oil market has proven notable resilience. Nonetheless, bettering adherence to voluntary manufacturing cuts by OPEC+ will progressively diminish the anticipated provide surplus for the 12 months. The eventual tapering of OPEC+ cuts beginning in April 2025 could exert extra downward strain on costs, in response to the brokerage.

Studies point out that oil costs stabilised on Monday as buyers appeared for readability on negotiations to resolve the battle in Ukraine and thought of the potential of crude exports resuming from northern Iraq. On Tuesday, oil costs elevated for a second consecutive day as newly imposed US sanctions on Iran raised fears of tightening provide, together with robust international refining margins. Brent crude futures rose by 15 cents, or 0.2%, to $74.93 a barrel as of 0724 GMT, whereas U.S. West Texas Intermediate crude futures gained 23 cents, or 0.3%, to $70.93 a barrel. Each contracts skilled features in Monday’s buying and selling session following a $2 drop final Friday.

Oil and Fuel sector Outlook

In response to Anil R, Senior Analysis analyst, Geojit Monetary Companies, defined that the oil and fuel sector’s Q3FY25 earnings have been largely in keeping with YoY estimates. Nonetheless, earnings for the primary 9 months of FY25 declined considerably in comparison with 9MFY24, primarily resulting from crude value volatility and stock losses. Within the close to time period, the sector is predicted to ship a blended efficiency. Additionally, there’s a chance of moderation in volumes within the close to time period resulting from home progress slowdown.

Upstream corporations are prone to profit from increased crude and fuel output, together with improved realizations. Conversely, OMCs could face strain on core earnings resulting from elevated oil costs and a weaker rupee. Moreover, a rise in capital expenditure may average earnings progress.

The BSE Oil & Fuel index is at the moment buying and selling close to its long-term common, reflecting prevailing considerations. Whereas the sector continues to supply a lovely dividend yield, a possible scores improve for OMCs would doubtless depend upon a decline in crude costs.

Disclaimer: The views and proposals above are these of particular person analysts, specialists and broking corporations, not of Mint. We advise buyers to examine with licensed specialists earlier than making any funding choices.