Sector Gains on Fuel Price Hikes, But Losses Remain

On Tuesday, May 19, 2026, the Indian oil and gas sector saw increased investor interest, with the Nifty Oil & Gas index climbing 0.64%. This rise followed a domestic fuel price adjustment, the second in less than seven days after state-run retailers held prices steady for a long period. Petrol and diesel prices increased by about 90 paise per litre across the country.

Indraprastha Gas was a top performer, trading over 2.10% higher. Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL), Indian Oil Corporation (IOCL), Adani Total Gas, and Chennai Petroleum Corporation also saw gains above 1%. Other companies like Reliance Industries, Petronet LNG, and Castrol India experienced smaller upticks. However, Mahanagar Gas, Oil and Natural Gas Corporation (ONGC), and GAIL (India) traded lower, losing up to 0.80%.

Why OMCs Are Still Losing Money

The fuel price increases come as Oil Marketing Companies (OMCs) continue to lose money daily. Petroleum Secretary Sujata Sharma noted that despite the recent hikes, daily under-recoveries for state-run OMCs were near ₹750 crore, down from ₹1,000 crore earlier. This ongoing financial strain is directly tied to high global crude oil prices. These prices have remained volatile due to geopolitical tensions in West Asia, especially concerning Iran and the Strait of Hormuz. Brent crude futures were around $109 per barrel, and West Texas Intermediate (WTI) traded near $103 per barrel, showing slight drops on diplomatic efforts but staying elevated.

This situation highlights the main challenge for OMCs: balancing the need to cover losses with maintaining stable retail prices. The previous week's ₹3 per litre hike, the first in over four years, was necessary because of rising crude oil costs made worse by conflicts in the Middle East. While the latest small price increases aim to ease these pressures, they do not fully cover the mounting expenses, according to analyst reports.

Analysts Weigh In: Refining Strength vs. Marketing Woes

Analysts have differing views on the sector's major companies, depending on their business focus. Indian Oil Corporation (IOCL) and Bharat Petroleum Corporation (BPCL) are viewed more positively because they have more refining operations and are more diversified. This helps to reduce the impact of losses from selling fuel. For example, Nomura maintains a 'Buy' rating on IOCL with a target price of ₹190, pointing to its strong refining capacity and planned expansions. Nomura also rates BPCL a 'Buy' with a target of ₹460, seeing significant potential, although it faces pressure from fuel sales and LPG (liquefied petroleum gas) under-recoveries.

Hindustan Petroleum Corporation (HPCL) is seen as the most exposed. Although it reported a strong quarter due to good refining margins, analysts like Nomura have downgraded HPCL to 'Neutral' with a target price of ₹440. They cite its much higher exposure to fuel marketing and the resulting sharp losses. Macquarie, however, keeps an 'Outperform' rating with a target of ₹510, recognizing HPCL's stable refining performance but warning of near-term difficulties for OMCs. Macquarie estimates current losses are around ₹18 per litre on petrol and ₹35 per litre on diesel.

Reliance Industries, with its wide range of energy businesses including refining and petrochemicals, has a higher P/E ratio (around 22.39x) than the OMCs, reflecting its broader operations. Analysts generally recommend 'Strong Buy' for Reliance, with an average target price of ₹1,696.63. ONGC, a major exploration and production company, faces different pressures, with analysts expecting its performance to depend heavily on actual crude oil prices and potential deviations from guidance. GAIL, the gas transmission leader, has a P/E of about 13.8x. Analysts favor a 'Buy' rating with an average target of ₹193.99, though it must navigate regulatory changes and competition. Adani Total Gas stands out with a very high P/E ratio (around 105x), suggesting a premium valuation driven by expected growth in the city gas distribution market.

Geopolitical Tensions and Price Gaps Hurt OMCs

The main problem for OMCs is their large marketing losses, worsened by the difference between unstable global crude prices and fixed domestic retail prices. Nomura estimates that OMCs might need an additional ₹25 per litre price increase for fuels to cover their costs fully. Ongoing geopolitical instability in West Asia not only risks supply but also keeps crude oil prices higher, directly impacting the profits of Indian refiners and marketers.

Furthermore, Mahanagar Gas (MGL) shows company-specific challenges. Its stock has underperformed significantly, earnings have declined, and technical indicators are bearish, suggesting problems beyond the broader sector trends. GAIL also faces risks from changing regulations and growing competition in its gas transmission and distribution services.

What's Next for India's Oil Sector

Despite these challenges, analyst views on the sector are mixed but generally positive for integrated companies like IOCL and BPCL, and strongly positive for Reliance Industries. For HPCL, opinions are divided, showing the company's vulnerability to margin pressures. GAIL is also viewed favorably by analysts, supported by its strong position in gas transmission and government policies that favor natural gas.

The sector's future performance will likely depend on stable global crude prices, reduced geopolitical tensions, and the government's approach to fuel pricing policies that address OMC under-recoveries.