Brent crude could remain elevated at around $80 a barrel over the next 12 months, even as oil supply recovers, according to analysts at JM Financial. The brokerage expects the higher crude-price environment to favour upstream producers Oil India and ONGC, while retaining a 'Reduce' rating on oil marketing companies (OMCs) on valuation and earnings concerns.
JM Financial analysts Dayanand Mittal, Shivam Gupta and Anupam Jakhotia have retained a Buy rating on both Oil India and ONGC, with target prices of Rs 560 and Rs 300, respectively. The analysts, meanwhile, have reaffirmed their 'Reduce' ratings on HPCL, BPCL and IOCL, with target prices of Rs 375, Rs 290 and Rs 135, respectively.
Why JM Financial prefers Oil India and ONGC
JM Financial said Oil India offers a 15-20% EPS compounding story over the next three to five years and said it prefers the stock. The brokerage cited the expansion of Oil India’s NRL refinery capacity from 3 million tonnes per annum to 9 million tonnes per annum by the end of FY27E and the expected gradual ramp-up to 100% utilisation over two to three years.
The company is also seeing a robust crude output growth trend since Q4FY26, with crude output expected to reach 4 million tonnes in FY27E, compared with 3.45 million tonnes in FY26.
Oil India’s gas output is expected to rise to around 4 billion cubic metres by FY28-29E from 3.2 billion cubic metres in FY26, along with the ramp-up of NRL’s expanded capacity. Gas output could subsequently rise to 5 billion cubic metres once evacuation pipeline facilities are in place, JM Financial said.
The brokerage also expects a possible reversal of the excise cut on auto fuel, which could restore an excise benefit of around $16 a barrel for the NRL refinery.
ALSO READ: Strong Q1 results spark stock-picking rush: 50 top ideas for investors to buy
Why OMCs remain under pressure
JM Financial has retained its Reduce rating on HPCL, BPCL and IOCL, citing an unfavourable risk-reward profile. At a landed Brent price of around $101 a barrel, comprising Brent at about $91 a barrel and $10 a barrel in higher freight costs, the OMCs’ weighted average auto-fuel integrated gross margin is estimated at Rs 9 per litre, which is Rs 3.5 per litre below the historical average of Rs 12.5 per litre.
The brokerage estimates that OMCs are making around Rs 4.5 per litre in EBITDA from auto fuel, Rs 3.5 per litre below the historical average of Rs 8 per litre. Their integrated gross margin stands at around Rs 9 per litre, compared with the historical average of Rs 12.5 per litre.
JM Financial said OMCs could earn a normalised auto-fuel integrated gross margin of Rs 12.5 per litre at a landed Brent price of around $95 a barrel, aided by a Rs 10 per litre excise duty cut by the government and a Rs 7.5 per litre fuel price hike.
"We have a Reduce on HPCL/BPCL/IOCL (TP: Rs 375/290/135) as i) valuation is significantly above trough valuation and, hence, not favourable on risk-reward basis; ii) we expect OMCs to face delays in recovery of under-recoveries (including LPG) during Mar-Jun’26; iii) crude price is likely to remain elevated ~USD 80/bbl in the next 12 months due to huge restocking demand; and iv) structural concerns around their aggressive capex plans in the refining and petchem business," said the brokerage.
HPCL sees sharpest book-value erosion
JM Financial noted that large marketing losses in Q1FY27 resulted in a 19% decline in HPCL’s consolidated book value to Rs 250 per share at the end of Q1FY27, from Rs 308 at the end of FY26.
By comparison, IOCL and BPCL saw book-value erosion of 1% and 2%, respectively. IOCL’s book value stood at Rs 154 per share at the end of Q1FY27, compared with Rs 155 at the end of FY26, while BPCL’s stood at Rs 230 per share, against Rs 234 at the end of FY26.
Based on Q1FY27-end book value, HPCL is trading at 1.48 times price-to-book value, BPCL at 1.38 times and IOCL at 0.9 times, according to the brokerage.
Why Brent could stay near $80
JM Financial expects Brent to remain around $80 a barrel over the next 12 months despite the reopening of the Strait of Hormuz. The brokerage estimates restocking demand at 2-3 million barrels per day as countries replenish the 1,000-1,200 million barrels of inventory depleted during the crisis. It also noted that several countries, including India, are building strategic reserves to absorb future supply shocks.
The brokerage expects the risk of Middle East output not returning to 100% of pre-Iran crisis levels to support crude prices. It noted that 8-10 million barrels per day of capacity had been forced to shut down, while the EIA expects 0.6 million barrels per day of Middle East output to remain shut through the end of CY27.
Higher freight and insurance costs, fees proposed by Iran for flows through the Strait of Hormuz and geopolitical risk, JM Financial believes, could add $3-5 a barrel to crude prices.
"Chinese crude oil imports have recovered to 8.2mmbpd in Jul’26 versus 7.1mmbpd in Jun’26, but they are still lower than 12mmbpd in Jan-Feb’26. But ME supply normalisation and additional output from UAE/Iran/Venezuela are likely to cap oil prices 70/bbl over the medium term," said the brokerage.
The brokerage said the flow of oil through the Strait of Hormuz, US President’s actions to moderate oil prices ahead of the November 2026 mid-term elections and China’s crude import trend will be key factors to watch for the oil market.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
.png?w=600)
