Brent Oil futures below $65 a barrel: Oil stocks to buy

Despite the recent recovery, Brent oil futures are trading trade low at $65 a barrel, with analysts citing demand concerns driven by the tariff uncertainty. Besides, they noted that a surprise acceleration in output by Saudi Arabia-led OPEC+ at a time when oil market was already in a surplus added to the weakness in oil prices.  

There is also a risk of rise in supply from Iran by 0.5mmbpd if the US removes sanctions on Iranian oil. This would be against earlier possibility of decline in Iranian oil by 1mmbpd if the US were to tighten sanctions. 

Brokerage JM Financial, however, believes the Brent is unlikely to sustain significantly below $70 a barrel. It suggested ‘Buy’ on oil stocks ONGC and Oil India as it believes the current market prices of the two stocks are discounting $55-60 a barrel of net crude realisation. Besides, the domestic brokerage is positive on 15-25 per cent production growth outlook for the two companies in the next 1-3 years. 

“Sustained low crude price could boost OMCs’ auto-fuel marketing margin, though this is unlikely to sustain as historical precedent suggests the government is likely to mostly hike excise duty and/or cut price of petrol/diesel if crude price sustains at low levels,” JM Financial said.

JM Financial said the risk-reward for OMCs namely BPCL, HPCL and IOC is not favourable given the PSUs’ aggressive capex plans and as valuations at 1.3-1.4 times FY27 price to book value are 20-30 per cent above historical averages. 

On Monday, Brent futures for July delivery were trading at $64.98 a barrel, down 0.66 per cent. Brent prices breached $80 a barrel mark in January, only to fall later as concerns over Trump tariffs cooled demand. 
IEA expects the oil market to turn into ~0.8mmbpd surplus in CY25 and expects surplus to rise further in 2026. This compares to marginal deficit in 2024. 

JM Financial said the temporary U-turn in Saudi Arabia’s-led OPEC+ strategy from price to market share is mostly to threaten Kazakhstan and Iraq to comply with the output quota and partly to accede to the US near-term demand for lower oil price to help end Russia-Ukraine war. 

“However, both Saudi Arabia and the US need high crude price $70/bbl in the long-run, as otherwise it could lead to a steep rise in Saudi Arabia’s fiscal deficit (given its high fiscal break-even price of $85/bbl) and also hurt US shale oil capex (which will be against US President’s plans to boost energy exports to reduce US trade deficit),” JM said.