Dayanand Mittal, oil and gas research analyst at JM Financial Institutional Securities believes the key determinant of oil prices is US government policy, particularly under President Trump. “Oil is now closer to $70, and we don’t see a scenario where oil goes down to $60 or so,” he noted.
A crucial factor keeping oil around $70 is the US administration’s dual objective—ensuring prices remain affordable for American consumers while also supporting the financial viability of US oil and gas companies. US shale producers typically require oil prices in the $65-$70 range to justify capital expenditures. Any sharp drop below this level could disrupt investments in the sector, something the administration would likely seek to avoid.Another significant aspect is the US-Saudi relationship. Saudi Arabia, which has a fiscal breakeven oil price of around $85 per barrel, has complied with the US request for higher production to moderate prices. However, pushing prices too low—toward $60—could strain Saudi Arabia’s fiscal position.
Mittal points out that if oil prices were to fall too much, “Saudi will make a reverse U-turn in their output hike decision, and they will either pause this output hike or maybe even go for a cut as well.”Mittal has cautious outlook on OMCs over the past two years. JM Financial acknowledges that their valuations have improved. OMC stocks are currently trading at about 1-1.1 times their price-to-book value, which is in line with historical averages. This makes them more attractive, but the overall stance remains cautious.
He added, “We still maintain a cautious view, but we think that is risk-reward is balanced, and if one has a bearish view on crude, maybe they can take a more constructive view on OMCs.”
ONGC’s shares and Oil India’s shares are currently trading at ₹ 227.44 and ₹366.05 respectively as of 10:05 am on the NSE.
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