The roughly 4% drop in oil on Thursday snapped a five-day rally driven by geopolitical fears, reviving the investment case for select oil-linked stocks even as questions linger over how long the pullback will last.
Oil prices retreated after U.S. President Donald Trump said the crackdown on protesters in Iran was easing, tempering fears of imminent military action and potential supply disruptions from the Middle East. Brent crude futures settled down $2.76, or 4.15%, at $63.76 a barrel on Thursday, while U.S. West Texas Intermediate fell $2.83, or 4.56%, to $59.19 a barrel.
Prices steadied early Friday. Brent was down 3 cents, or 0.05%, at $63.73 per barrel, while WTI was up 4 cents, or 0.07%, at $59.22 per barrel as of 0223 GMT, after both benchmarks had climbed to multi-month highs earlier in the week amid unrest in Iran and signals from Trump that strikes were possible.
Stocks and sectors in play
The move in crude is likely to ripple across Indian equities. Upstream companies such as ONGC and Oil India typically track oil prices closely, while refiners including Indian Oil, BPCL and HPCL tend to benefit from softer crude through improved margins. Reliance Industries, with its integrated oil-to-chemicals business, also remains in focus, alongside oil-sensitive sectors such as paints, aviation and tyres.
Brokerage Choice Institutional Equities said Brent prices fell over 4% on Jan. 15 after an 11% rally the previous week, during which “geopolitical risk premiums climbed as concerns shifted from oversupply to structural supply threats, driven by unrest in Iran, repeated Black Sea tanker attacks, and heightened prospects of U.S. military intervention.”
The brokerage flagged that Nigeria missed its OPEC+ production quota for a fifth straight month and that U.S. oil output remained elevated, averaging 13.811 million barrels per day in the week of Jan. 2, about 2% higher than a year earlier.
What brokers are watching
In its assessment, Choice Institutional Equities said, “Provided supply disruptions, whether geopolitical or operational, evolve into sustained and systemic constraints oil prices are likely to find sustained support. However, we expect that broad oversupply, underpinned by resilient US production and expanding inventory levels, would likely keep upward pressure on prices subdued.”
The brokerage added that it continues to see gross refining margins for Indian refiners remaining elevated for Q4FY26, noting that quarter-to-date Brent prices still average USD 62.81, down 16% year-on-year.
On policy, it said the upcoming Indian budget is expected to include measures aimed at upstream activity, particularly as the bid submission deadline for OLAP Round X has been delayed by over a year, “underscoring the need for renewed policy impetus to catalyze exploration and production investment.”
Looking ahead, Choice Institutional Equities said, “We expect Brent to average to USD 61.5/b in 2026 in the backdrop of increased competition as a result of (a) relentless supply of oil from the US at lower prices, (b) gradual unwinding of cuts by OPEC+ and (c) possible removal of sanctions on Rosneft and Lukoil.”
For investors, the sharp reversal in crude has brought oil-linked names, like ONGC, Oil India, Reliance Industries, Indian Oil, BPCL and HPCL, back into sharp focus, with near-term sentiment likely to hinge on whether geopolitics or oversupply ultimately sets the tone for prices.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)