Oil prices have taken a significant dip recently, with Brent crude falling from an average of $79 per barrel in FY25 to a current range of $60–66. This decline can be largely attributed to ongoing global tariff disputes, unexpected production levels from OPEC+, and increasing concerns about a potential supply surplus.
While one might expect that low prices would benefit India’s downstream oil companies, the dynamics of the Indian oil market often defy expectations. Factors such as sanctions on Venezuela and Iran, which could eliminate up to 1 million barrels per day from the market, might push prices back towards the $70 mark.
The Unpredictable Indian Oil Market
Historically, even when crude prices drop, consumers don’t always see the benefits. Governments often choose to increase excise duties or limit retail price reductions, complicating the landscape for both upstream and downstream players.
Despite the fluctuating market, some oil companies are not merely surviving; they are strategically positioning themselves for future growth. Let’s explore three such companies making waves in the current climate.
ONGC: India’s Oil Powerhouse
Oil and Natural Gas Corporation (ONGC) stands tall as India’s largest oil and gas producer. The company has been instrumental in discovering 8 out of 9 of India’s producing basins and is a vital player in the country’s energy sector through its subsidiaries like HPCL and MRPL.
- Recent Performance: ONGC recently reported a decrease in profits, dropping from Rs 306.6 billion to Rs 291.6 billion in the first nine months of FY25. Despite this, the company has reversed a trend of declining production.
- Production Gains: Output from fields like KG-98/2 has surged, reaching 35,000 barrels per day along with 3 MMSCMD of gas. Additionally, ONGC is teaming up with BP to enhance recovery rates at Mumbai High by 60% over the next decade.
Financial Highlights of ONGC (2020-2024)
- Revenue Growth: 6.7% CAGR
- Net Profit Margin: Increased to 8.8%
- ROE: Averaged 12.6%
ONGC is pushing ahead with its exploration efforts, bidding on 19 blocks under the OALP IX initiative and aiming for greener energy solutions with plans for 10 GW of renewable capacity by 2030.
Oil India: Resilience in Adversity
Next, we take a look at Oil India, the second-largest national oil explorer in India. With roots in Assam, the company plays a crucial role in the nation’s energy security.
- Production Trends: Despite a decline in average crude realizations to $73.8 per barrel in Q3 FY25, Oil India has experienced a 4.1% rise in oil output and a 2.9% increase in gas production.
- Expansion Projects: The Numaligarh Refinery is set to triple its capacity from 3 to 9 MMTPA, with over 70% of the work already completed.
Financial Overview of Oil India (2020-2024)
- Revenue Growth: 15.8% CAGR
- Net Profit Margin: Averaged 22.0%
- ROCE: Averaged 17.8%
With significant investments in new gas pricing and exploration in high-potential areas, Oil India remains well-positioned for growth, despite a challenging environment.
Chennai Petroleum Corporation: Rising to the Challenge
Finally, we have Chennai Petroleum Corporation (CPCL), one of the foremost refiners in India. As a subsidiary of Indian Oil Corporation, it boasts a refining capacity of 11.5 MMTPA.
- Capacity Utilization: CPCL achieved a record crude throughput of 11.6 MMT in FY24, running at 111% of its capacity.
- Operational Efficiency: The company recorded its lowest fuel loss at 8.81%, demonstrating its commitment to efficiency despite the global refining margin downturn.
Financial Data for CPCL (2020-2024)
- Revenue Growth: 11.9% CAGR
- ROE: Averaged 29.4%
- Operating Profit Margin: Averaged 7.0%
With ongoing projects like the Cauvery Basin Refinery, which will add 9 MMTPA of capacity, CPCL is positioning itself to thrive even in a challenging market.
Conclusion: Navigating an Uncertain Future
As we move forward, the oil market remains unpredictable. With estimates suggesting a surplus of 0.5 mmbpd in 2025, the impact on upstream companies like ONGC and Oil India could be significant. A $5/bbl drop in Brent crude could reduce earnings per share by 8–10%.
Nevertheless, these companies are not merely waiting for a price rebound; they are focused on production growth, exploration, and embracing energy transition opportunities. Investors should pay close attention to how these firms implement their growth strategies, managing costs while adapting to market changes.
By selecting carefully, investors can tap into the long-term potential of these energy companies, while remaining aware of the risks associated with the volatile commodity cycle. Happy investing!
