BofA prefers oil producers over refiners as crude prices stay elevated

Bharat Subramanian, Senior Analyst (Energy) at BofA Global Research, believes upstream oil and gas companies are better positioned than downstream players if crude oil prices remain elevated and the rupee continues to weaken.

Subramanian said the direction of crude prices remains difficult to predict because of ongoing geopolitical uncertainties. However, he noted that BofA's current preference is tilted towards exploration and production companies rather than oil marketing companies.

The brokerage's base-case assumption is for global crude oil prices to average around $92.5 per barrel during calendar year 2026. Under such a scenario, upstream companies stand to benefit from stronger crude realisations and currency movements.

According to him, higher crude prices and rupee depreciation both support earnings for exploration and production companies. At the same time, India's push for energy security is creating long-term opportunities in deepwater and ultra-deepwater exploration.

Subramanian highlighted that recent policy measures, including amendments to the Oilfields Regulation and Development Act, have improved regulatory stability and could encourage fresh investments in the sector. While domestic companies are expected to remain anchor investors, global players could also increase capital spending in India's upstream energy space.

BofA expects oil marketing companies to report negative marketing margins during the current year.

Looking beyond oil, Subramanian said India continues to have a high dependence on imported natural gas and LPG. To address this challenge, he expects greater emphasis on increasing domestic gas production as well as developing alternative fuel sources.

"We do see India having the potential to substitute up to 120% of its current natural gas demand using biofuels with existing feedstock," he said.

BofA sees biofuels and ethanol as important long-term themes that can help improve India's energy security while reducing reliance on imported fuels.

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