Sector Faces Broad-Based Decline as Crude Prices and Refining Margins Weigh on Market
Oil and gas stocks continued their downward spiral on February 28, extending losses for the fifth consecutive session as investors remained cautious over stagnant crude prices, reducing refining margins, and high LPG subsidy burdens. The BSE Oil & Gas Index fell 2.53%, reflecting broader market weakness amid global trade concerns and economic slowdown fears.
At 1:30 PM, the BSE Oil & Gas Index stood at 22,609 points, deep in the red along with all 13 major sectoral indices. The broader market indices also dropped over 2% each, while Sensex and Nifty declined over 1%, highlighting broad-based selling pressure due to escalating trade war fears and a slowing US economy.
Losers in the Oil & Gas Sector
- Oil India: Shares dropped over 6% to ₹343.75, marking a 6.05% decline.
- ONGC: Down 2.88% as of 1:50 PM.
- GAIL: Declined 3.11% in intraday trading.
- Bharat Petroleum Corp (BPCL): Fell 3.25%.
- Reliance Industries (RIL): The only exception, trading marginally higher by 0.19%.
Oil & Gas Stocks Have Corrected Sharply But Still Above 10-Year Lows
A Motilal Oswal (MOSL) research note pointed out that valuations of oil and gas stocks have corrected significantly over the last seven months, yet they remain far from their 10-year lows and are unlikely to test those levels.
- The average one-year forward P/E (excluding Reliance Industries) stands at 7.7x, reflecting a 34% decline since June 2024.
- Despite pessimistic 2025-2026 crude price forecasts, prices are expected to stay above $60 per barrel, providing some stability.
- Gross marketing margins on petrol and diesel are projected at ₹3.3 per litre, though actual margins have remained resilient and could exceed expectations.
- The negative impact of the government’s domestic gas pricing policy on city gas distributors has already been absorbed, reducing further downside risks for the sector.
US Tariff Threats Could Shift India’s Energy Import Strategy
Adding to market jitters, the Trump administration’s new reciprocal tariffs are weighing on investor sentiment. A Kotak Institutional Equities report suggested that India might increase its energy imports from the US to counteract trade tensions, albeit at higher costs.
- India’s LNG imports from the US have been rising, as they offer arbitrage advantages over oil-linked prices.
- If the US enforces new reciprocal tariffs, India may boost its crude oil imports from the US, potentially increasing energy costs.
Market Outlook: Mixed Signals for the Oil & Gas Sector
While short-term market sentiment remains weak, oil and gas companies could see some stability due to resilient crude prices, stronger-than-expected refining margins, and easing regulatory risks.
However, investors will closely watch US trade policies, crude price movements, and domestic energy policy decisions to gauge the sector’s long-term trajectory.
At 1:50 PM, oil and gas stocks remained under heavy selling pressure, mirroring the broader market downturn.
