Kotak Institutional Equities has raised its FY27 crude oil price assumption from $85 to $90 per barrel, citing prolonged supply disruptions and elevated volatility, while saying Indian oil marketing companies have enough cushion to absorb short-term price shocks.
Kotak Institutional Equities has raised its crude oil price assumption for FY2027 to $90 per barrel from $85, citing prolonged supply disruptions and heightened volatility in global oil markets.
According to Kotak’s latest report, the disruption linked to the West Asia conflict has continued for seven months, with little visibility on a return to normal supply conditions.
“Driven by higher prices so far, we raise FY2027E oil price assumption to US$90/bbl (from US$85/bbl),” the brokerage said.
Kotak, however, said Indian oil marketing companies (OMCs) have built up some protection against a sharp rise in crude prices. Changes in fuel pricing have pushed the break-even crude price for OMCs to around $102-$105 per barrel, providing a cushion against short-term spikes.
The brokerage said higher crude prices are likely to keep OMC earnings under pressure in FY2027. However, it sees limited scope for another increase in petrol and diesel retail prices in the near term.
Kotak noted that a Rs 10 per litre cut in excise duty, along with an increase of around Rs 7.5 per litre in petrol and diesel retail prices, has improved the OMCs’ ability to absorb higher crude costs.
“With geopolitical risks and oil-price volatility elevated, a rollback appears unlikely until risks ease and prices decline materially,” the brokerage said.
More from BusinessLPG under-recovery a key concern
Kotak has also flagged a significant near-term burden from liquefied petroleum gas (LPG). It estimates LPG under-recoveries could reach around Rs 243 billion in the second quarter of FY2027, as domestic LPG prices remain unchanged while international LPG prices stay elevated.
The brokerage expects strong second-quarter results to help offset losses incurred in the first quarter.
It has retained its crude oil price assumption at $75 per barrel for FY2028 and the long term. Kotak expects OMC earnings to improve as oil prices moderate and companies are allowed to retain higher marketing margins.
“As oil prices moderate, OMCs will likely be allowed to retain higher marketing margins, driving strong earnings rebound in FY2028-29E,” it said.
Kotak also said the prolonged supply disruption highlights the need for OMCs to strengthen resilience by investing in crude oil and LNG storage. Refiners could also accelerate investments in city gas infrastructure to reduce dependence on domestic LPG.
