Oil and Gas Stocks Struggle for Fifth Consecutive Session Amid Selloff and Tariff Concerns

The BSE Oil & Gas Index continues to face intense selling pressure, marking its fifth consecutive day of decline amid a broader market downturn on February 28. The downturn is primarily attributed to stagnant crude oil prices, shrinking refining margins, and a significant LPG subsidy burden, all of which are weighing on the index.

As of 1:30 pm, the index stood at 22,609 points, reflecting a 2.53% drop.

Stock Performance

Oil India shares have plunged over 6%, trading at ₹343.75 as of 1:50 pm, marking a 6.05% decline. Similarly, ONGC, GAIL, and Bharat Petroleum Corporation (BPCL) are all experiencing nearly 3% losses. At 1:50 pm, ONGC shares were down 2.88%, GAIL had fallen by 3.11%, and BPCL was trading 3.25% lower. In contrast, Reliance Industries managed to stay slightly positive, trading up by 0.19%.

All 13 major sectoral indices are in the red, with broader market indices dropping over 2% each. By midday, both the Sensex and Nifty had declined by over 1%, reflecting widespread selling amid concerns over a potential global trade war and increasing scrutiny of the slowing U.S. economy.

Market Sentiment and Valuations

A report by Motilal Oswal highlights that valuations of oil and gas stocks have seen a sharp correction over the past seven months, with the average one-year forward P/E ratio (excluding Reliance Industries) at 7.7x—down 34% compared to June 2024. However, the report notes that current valuations are still far from their 10-year lows and are unlikely to reach those levels.

Despite pessimistic forecasts for 2025 and 2026, crude oil prices are expected to remain above $60 per barrel, offering some stability to the sector. Additionally, gross marketing margins on petrol and diesel are projected at ₹3.3 per litre, though actual margins have remained resilient and may exceed these estimates. The impact of government changes to domestic gas pricing for city gas distributors has largely been absorbed, reducing further downside risks, according to Motilal Oswal.

Global Economic Factors and Policy Impact

Concerns loom over potential reciprocal tariffs from the Trump administration. A report by Kotak Institutional Equities suggests that India may increase energy imports from the U.S. to counter this impact, albeit at higher costs. The report highlights that India’s LNG imports from the U.S. have risen due to arbitrage opportunities against oil-linked prices. As the U.S. pushes for reciprocal tariffs, India is expected to boost crude oil purchases from the U.S. in response.

The oil and gas sector is also facing challenges from the domestic policy landscape. The Indian government’s continued focus on reducing its fiscal deficit may lead to further subsidy cuts, which could impact state-owned oil firms. Additionally, the pressure to transition toward cleaner energy sources is influencing investment strategies in the sector, with companies shifting focus toward renewable energy and gas-based projects.

Geopolitical tensions in the Middle East and production cuts by OPEC+ are also contributing to market volatility. Any disruption in supply chains could lead to fluctuations in crude oil prices, directly impacting refining margins and overall profitability for oil and gas companies.

Outlook for the Sector

Despite the current bearish sentiment, analysts believe that long-term fundamentals remain intact. The demand for oil and gas in India is expected to rise steadily due to industrial expansion and increasing energy consumption. Strategic investments in refining capacity and pipeline infrastructure may help mitigate short-term losses and improve long-term growth prospects.

Moreover, the government’s push for energy security and diversification of supply sources is expected to bring stability to the sector. Companies that adapt to the changing market dynamics and invest in alternative energy solutions may be better positioned for future growth.

In the near term, market movements will largely depend on global crude oil trends, refining margins, and policy developments. Investors will be closely watching upcoming economic data and geopolitical developments that could influence the sector’s performance.