Shares of oil marketing companies rose up to 5% in early trade on Wednesday as crude oil prices extended their fall for the third consecutive session amid oversupply concerns after several members of OPEC and its allies said they would start raising production next month. This would be the first time since 2022 when OPEC+, which includes the Organisation of the Petroleum Exporting Countries, plus Russia and other allies, proposed to increase production.

The sentiment was further dented by looming uncertainty about global economic growth after U.S. President Donald Trump pledged to impose tariffs on key trading partners - Canada, Mexico and China. On Monday, Trump confirmed that 25% tariffs on Mexico and Canada would be effective from March 3, while the U.S. has doubled tariffs on Chinese goods to 20%.

Brent crude, the international benchmark, was down 0.45% to $70.73 per barrel, while it breached $70 level in the previous session, hitting its lowest since September 11, 2024. U.S. West Texas Intermediate (WTI) crude fell 0.85% a barrel to $67.68 after slipping to settling at $66.77 in the previous session, the lowest since November 18, 2024.

Triggered by the drop in the Brent crude futures, oil stocks, especially state-owned oil marketing companies (OMCs), witnessed a strong rally on Wednesday. Hindustan Petroleum Corporation (HPCL) topped the gainers chart with a 5% rally, followed by Indraprastha Gas (IGL) and GAIL India, which rose over 2% each. Among others, Oil India Ltd (OIL), Oil and Natural Gas Corporation (ONGC), Bharat Petroleum Corporation (BPCL), Indian Oil Corporation (IOC), and Petronet LNG gained in the range of 1-2%.

Among private players, shares of Reliance Industries gained as much as 1.1%, while Adani Total Gas rose up to 2%. Meanwhile, the BSE oil & gas index was up 1.5%, while the equity benchmarks Sensex and Nifty were trading higher by 0.7%.

According to a latest report by Emkay, there is a case for oil prices falling to the $60s temporarily, though $70-75 a bbl could be a more probable range now vs $75-80/bbl earlier. A sharply lower oil price, contrary to conventional wisdom, can be detrimental to the Indian oil & gas sector, affecting upstream realisations and gas economics versus oil. OMCs would tend to gain, but price cuts and excise hike concerns will surface, coupled with heavy near-term inventory losses, it noted.

Why crude prices are falling

The oil market faces a double whammy of higher supply and lackluster demand that pushed crude prices lower. In a significant development, OPEC+ countries have agreed to proceed with gradual rollback of the 2.2mbpd voluntary production cut effected in Nov-23, starting from Apr-25 up to Sep/Dec-26.

“The group has cited healthy market fundamentals and a positive outlook but could stop or even reverse the increase depending on market conditions. This was cautiously expected by markets following Trump’s US presidency, but is still a major step, being 38% of the 5.9mbpd of cumulative cuts taken during 2022-23,” according to a report by Emkay.

The oil prices, which have already started weakening from $80 per barrel, is seeing further downward pressure with Brent futures near $70/bbl currently.

Adding to the woes, the U.S. tariffs on Canada, Mexico, and China along with the U.S.-Ukraine-Russia scenario has also created further uncertainties, with some bullish factors also on the horizon, namely U.S. intensifying sanctions on Iran and upcoming announcement of the Chinese economic stimulus, the report noted.

As per the report, $70 per barrel oil brings OMCs back to the sweet spot with CP diesel/petrol gross marketing margins at ₹8-12 per liter, which more than offsets ₹250/cy of LPG under-recoveries, which can fall further with upcoming summer seasonality. Hence, OMCs can report strong earnings like Q3FY25. While Q4FY25 still seems weak, some LPG subsidy (we have assumed ₹20,000 crore) can come given comments from the petroleum minister, secretary, and OMCs themselves, which along with any hike in LPG prices can be material triggers.