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Global oil markets are likely to rebalance through demand destruction triggered by high crude prices amid ongoing supply disruptions, a trend that could improve margins for oil marketing companies (OMCs), according to a report by PL Capital.
The report, titled "Oil & Gas Sector Update," highlighted that the ongoing West Asia conflict has disrupted global oil supplies, particularly due to the closure of the Strait of Hormuz, a key transit route accounting for nearly, "20 percent of the world's oil trade". "The resultant disruption in supplies amounts to about 20 million barrels per day, there remains a shortfall of about 4.8 mbpd. This gap will probably be corrected through demand destruction by high fuel costs," report stated. PL Capital said that while rerouting of supplies, release of strategic reserves, and selective transit have partially offset the disruption, the remaining gap is expected to be addressed through reduced demand as higher fuel prices impact consumption. "We are already observing initial signs of demand destruction due to high crude prices impacting global consumption. This will help restore market balance and reduce prices going forward," said Amnish Aggarwal, Co-Head, Institutional Equities, PL Capital. The report noted that, "Higher prices for crude oil have led to increased prices at the pump, leading to signs of moderating demand early on in critical markets. The study reveals that the IEA forecasts a substantial fall in global oil demand in the April-June 2026 quarter by around 1.5 mbpd, which is the sharpest drop seen since the pandemic era." The report highlights that for the near term, the United States and China will be less affected as they possess ample supplies, oil-importing countries are facing increased pressure from supply constraints, higher cost of transportation, and the inability to procure from alternate sources. PL Capital expects that as demand slows and supply adjustments continue, crude prices will gradually stabilise. This environment is seen as favourable for OMCs, including Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation, as lower crude prices are likely to improve marketing margins despite moderate volumes. The report maintained an "Accumulate" rating on these companies, citing improved margin visibility driven by evolving global supply-demand dynamics. (ANI)
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