OPEC+ is losing its ability to control oil prices due to weak global demand and rising non-OPEC oil supplies. Now, after the change in administration in the US, the control of OPEC+ on oil prices seems to be at its lowest level, stated a report by Kotak Institutional Equities (KIE). “We cut our oil price assumption to $70/bbl for FY2026-27 and LT ($80/bbl earlier). Lower oil prices are negative for upstream,” it said.
With retail prices frozen, KIE said, the lower oil prices are optically positive for OMCs. However, some of this positive impact will be offset by rising US oil supplies, declining Russian crude and a weak INR.
US calling shots now
Since October 2022 when the OPEC+ alliance announced a 2.0 mb/d voluntary production cut, it has been keen to control oil prices by limiting supplies. With initial cuts insufficient, a few members took more voluntary cuts, and later delayed the reversal of these cuts. Despite this, oil prices weakened by late 2024. As the then Biden administration in the US increased sanctions on Russia, prices had briefly spiked in January 2025. However, with the new US administration going aggressive on tariffs, oil prices have sharply declined to 3-year lows. “With the initiative seemingly with the US, the effectiveness of OPEC+ alliance now seems at its lowest level. With the alliance keen to reverse the voluntary cuts, it now seems keener to get the market share back. The oil prices outlook remains weak,” the KIE report said.
Rising non-OPEC+ supplies led by US
The OPEC+ alliance’s efforts have been made difficult by rising supplies from countries that are not part of the OPEC+ alliance, mainly led by shale oil production in the US. “We note that crude oil production by the US has increased by ~1.5 mb/day since October 2022 levels. This has happened despite overall shale rig deployment declining by nearly 25 per cent. Driven by the US, OECD Americas (also includes Canada, Mexico and Chile) grew oil production by nearly 1.6 mb/d in 2023, and accounted for over 50 per cent of non-OPEC+ production rise of 2.7 mb/d,” Kotak said.
Driven by further increases in the US oil production by 0.6-0.7 mb/d, the IEA (International Energy Agency) expects Americas to account for the bulk of non-OPEC+ supply increases in 2024 and 2025. Apart from the US, oil production is also rising in a few other countries such as Brazil, Canada and Guyana in the region.
India’s crude oil imports from US likely to increase sharply
According to the US EIA data, India was the largest importer of crude oil from the US in 2021. As India increased its import from Russia after the Russia-Ukraine conflict, it had sharply cut back on importing crude oil from the US. This, per Kotak Institutional Equities, may begin to reverse now as the US pushes for reciprocal tariffs.
Recent media reports have also stated that India has already assured the US that it will ramp up energy ties and increase imports. “As we noted recently, with relatively sweeter, lighter and longer voyage, US crudes are typically not preferred by Indian refiners. Our recent interactions with HPCL/IOC suggest that they cannot use more than 8-10 per cent of US crude in their refineries. In addition, the delivered prices of US crudes have been rising versus Russian crudes. Compared to nearly on par in FY2022 versus Russian crudes, delivered cost of US crudes was higher by $8.4/bbl in FY2023, and this increased to $10/bbl in FY2024. For 9MFY24, the delta has increased to over $13/bbl.” the brokerage firm said.
Russian oil production or export may not rise much
The new US administration is keen to end the Russia-Ukraine conflict soon. In the event of a truce, there are expectations that sanctions on Russia will end or significantly ease soon. While reduced sanctions will ease crude oil/product exports (and discounts will further decline), Kotak said, this may not lead to a significant increase in Russian oil/product exports. “As such, despite sanction, overall Russian production or exports were not significantly impacted. Unless Russia ceases to be part of OPEC+, its oil production will increase only about 0.5 mb/d by 2026, in line with the planned voluntary cut reversals of OPEC+,” it said.
Cut oil price assumption to $70/bbl
Oil prices declined to 3-year lows in early March, despite heightened sanctions on Russia and Iran. “An early truce in the Russia Ukraine war will be positive, though. In our view, there is very little scope for OPEC+ to bring extra production, although it seems keen now. We lower our oil price assumptions to $70/bbl (from $80/bbl) for FY2026/27 and LT. We do not expect oil prices to remain below ~$70/bbl for longer, as if it happens, apart from OPEC+ taking production cuts, new investments in E&P (particularly in US shale) could also see a decline,” Kotak Institutional Equities maintained.
Upstream: Cut EBITDA by 8-11%
With the lower oil price assumptions, Kotak has cut FY2026/27E EBITDA by 8-11 per cent for ONGC and Oil India. While the lower oil prices are negative, policy concerns have eased with the removal of the windfall tax and higher gas price realization for ONGC. In addition, the ORD Act amendment brings policy/fiscal stability.
“Maintain BUY on ONGC, and SELL on BPCL, HPCL, IOCL and Oil India,” it said.
OMCs: Case strong for auto fuel price cuts
For OMCs, lower oil prices are a positive but frozen retail prices and lack of pricing freedom remain key concerns. While retail prices have been frozen for long, Kotak said, retail price cuts soon can compress marketing margins. “With likely higher US crude imports, the refining outlook is weak, as oil costs will rise. We further moderate our GRM assumptions and cut FY2026-27E EBITDA by 3-7 per cent for OMCs.