OMCs, gas utilities remain top picks despite fresh oil price volatility: ICICI Securities

Oil marketing companies (OMCs) and gas utility stocks remain well placed even as crude oil prices rebound on renewed tensions in West Asia, according to Probal Sen, Senior Research Analyst-Indian Oil & Gas Sector, Indian Agrichem Sector, Institutional Equities at ICICI Securities.

He believes the outlook remains favourable as long as crude prices stay below levels that significantly hurt fuel marketing margins, while gas utilities are likely to benefit from improving global liquefied natural gas (LNG) supplies over the coming months.

Sen said the key level to watch is around $85 a barrel. "Once they again breach $85 is when you really start to worry about significant subsidy losses," he said. As things stand, crude prices remain below that threshold, allowing OMCs to maintain healthy retail margins even as markets react to geopolitical developments.

He expects OMCs to outperform over the next six months if crude prices settle in the high-$70s to low-$80s range. Gas utilities are another preferred segment, supported by expectations of a global LNG supply glut over the next nine to twelve months. According to Sen, better gas availability should improve pricing competitiveness and support margins for gas consumers and distributors.

While Oil and Natural Gas Corporation again following fresh attacks around the Strait of Hormuz, Sen believes India's crude supply has remained largely secure. Even during the worst of the recent disruption, imports averaged around 4.5–4.6 million barrels per day, which was sufficient to meet most domestic demand. The main area of concern remains liquefied petroleum gas (LPG), where India depends on imported finished products and could face pressure if disruptions intensify.

Sen also believes the recent weakness in crude prices was partly driven by temporary factors rather than a lasting improvement in supply. He noted that floating Iranian cargoes entering the market and relief over inventory levels had pushed prices lower after the ceasefire, but normal shipping through the Strait of Hormuz has yet to fully recover. "The flows from the Strait of Hormuz still remain extremely limited, if you compare to pre-conflict levels," he said, adding that any setback to the fragile peace could quickly tighten the market again.

Peter McGuire, CEO of Trading.com, also expects geopolitical developments to keep oil prices volatile in the near term. While Oil India whether the world is heading towards a supply surplus, he believes traders are focused on the immediate risk of further escalation. "The market at the moment is probably more bullish than bearish in the short term," he said, noting that the next 24 to 36 hours would be crucial in determining whether tensions ease or intensify.

Asked whether crude is more likely to reach $85 or fall to $65 first, McGuire said he sees prices moving higher before they move significantly lower. "I think it's closer to 80 than it is to 70," he said, suggesting that geopolitical risks are currently outweighing expectations of a future supply glut.

Watch the full conversation here

For upstream producers such as Oil and Natural Gas Corporation (ONGC) and Oil India, Sen believes the outlook is also constructive as long as crude remains around $75–80 a barrel. However, he says the next trigger for these companies will not be oil prices alone but their ability to deliver on production guidance. If production growth materialises alongside supportive crude prices, the broader oil and gas sector could continue to perform well despite ongoing uncertainty in global energy markets.

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This article is for informational purposes only and should not be construed as investment advice. Readers should consult certified experts before making any investment decisions.