Nomura expects a sharp recovery in second quarter earnings for Indian oil marketing companies as lower average crude prices during the quarter, the full impact of petrol and diesel price increases implemented in May, and lower LPG underrecoveries support profitability.

In its September 11 note, the brokerage said that despite crude oil recently crossing the psychological $100 per barrel mark, OMC earnings are expected to improve. Nomura estimates integrated refining and marketing margins of around $6 to $12 per barrel for the second quarter, assuming Brent crude remains at approximately $107 per barrel for the remainder of the quarter.

Among the major OMCs, Nomura expects Indian Oil Corporation to report profit before tax of around Rs 32 billion and Bharat Petroleum Corporation to report PBT of approximately Rs 26 billion. In contrast, Hindustan Petroleum Corporation is expected to report a PBT loss of around Rs 28 billion.

Nomura prefers Indian Oil Corporation and Bharat Petroleum Corporation because of their relatively higher exposure to refining. Hindustan Petroleum Corporation could remain more vulnerable to elevated crude prices because of its higher marketing leverage, according to the brokerage.

The brokerage also expects higher LNG prices to create opportunities for gas marketing businesses. With JKM LNG prices at around $25 per mmbtu, nearly double pre-war levels, Nomura expects increased LNG price volatility to benefit the gas marketing businesses of GAIL and Gujarat State Petronet, both of which carry Buy ratings from the brokerage.

Petronet LNG is also expected to see further improvement in regasification volumes during the second quarter as customers diversify LNG sourcing away from the Middle East. Nomura noted that Petronet LNG's fixed regasification tariff provides protection against margin volatility, making its business model relatively stable during periods of elevated LNG price volatility.

City gas distributors face a different operating environment. Higher gas costs, declining domestic gas allocation and limited scope for passing on higher costs could pressure margins. Nomura considers Indraprastha Gas relatively better positioned sequentially because of its gas sourcing mix, recent CNG price increases and a lower first quarter margin base. The brokerage retains a Buy rating on Mahanagar Gas, supported by its expectations for volume growth and further scope for CNG price increases.

Looking ahead, Nomura expects the prolonged Iran conflict to keep crude oil prices elevated for longer. The brokerage said a longer-than-expected conflict could materially affect the International Energy Agency's forecast for an oil surplus in 2027, potentially keeping oil prices higher in the near to medium term.

The brokerage also highlighted risks to oil transportation through the Bab el-Mandeb Strait, noting that Middle East oil flows have fallen around 40 percent from pre-war levels. At the same time, stronger Chinese crude demand could add further upward pressure on global oil prices.