Oil India faces operational delays in its subsidiary's refinery expansion project, prompting analysts to revise earnings estimates while maintaining an optimistic outlook on the stock's long-term prospects.

Refinery Expansion Timeline Revised

The company's material subsidiary, Numaligarh Refinery Ltd (NRL), has encountered delays in commencing operations of its expanded refinery capacity. The project involves scaling up from 3 mtpa to 9 mtpa, with operations now expected to begin in Q4-FY26 instead of the originally planned December 2025.

Impact on Earnings Estimates

The delayed commencement has led analysts to adjust their earnings projections for the company. The revision reflects the postponed revenue generation from the expanded refinery operations.

Market Sensitivity Analysis

Analysts have highlighted key factors that directly influence Oil India's profitability. Brent crude oil prices have a significant impact on the company's crude oil realisation and overall earnings performance.

Production Growth Projections

Despite the refinery delays, analysts remain positive about Oil India's core production capabilities. The company's standalone operations are expected to demonstrate steady growth across both gas and oil segments.

Analyst Recommendation

Analysts continue to maintain a Buy recommendation for Oil India with a revised target price of ₹495, compared to the current market price of ₹427.35. The valuation methodology breaks down the target price into two components: standalone business operations and investment portfolio.

Global oil markets are experiencing their longest stretch of annual losses, with Brent crude heading for a third consecutive year of declines in 2025. Oil prices edged up slightly on Wednesday but remain set to fall more than 15% this year, driven by supply outpacing demand in a period marked by geopolitical tensions, higher tariffs, and complex OPEC+ production decisions alongside sanctions on major oil-producing nations.

Current Market Performance

Oil benchmarks have faced sustained pressure throughout 2025, with both major contracts showing significant annual declines despite modest Wednesday gains:

Brent crude futures are down nearly 18%, marking the most substantial annual percentage decline since 2020. The March contract, which expires Wednesday, rose 11 cents to $61.44 per barrel. US West Texas Intermediate crude traded at $58.06, up 11 cents, but remains headed for a 19% annual decline. The 2025 average prices for both benchmarks represent the lowest levels since 2020.

Analyst Forecasts and Market Outlook

BNP Paribas commodities analyst Jason Ying expects further near-term weakness, projecting Brent to dip to $55.00 per barrel in the first quarter before recovering to $60.00 per barrel for the rest of 2026. The bearish outlook stems from US shale producers' ability to hedge at high levels, making supply more consistent and price-insensitive.

"The reason why we're more bearish than the market in the near term is that we think that US shale producers were able to hedge at high levels," Ying explained. "So the supply from shale producers will be more consistent and insensitive to price movements."

Geopolitical Tensions Shape Market Dynamics

Oil markets experienced a strong start to 2025 when former President Joe Biden ended his term by imposing tougher sanctions on Russia, disrupting supplies to major buyers China and India. The war in Ukraine intensified as Ukrainian drones damaged Russian energy infrastructure and disrupted Kazakhstan's oil exports.

The 12-day Iran-Israel conflict in June threatened shipping in the Strait of Hormuz, a critical oil chokepoint, which initially supported oil prices. Adding to tensions, top OPEC producers Saudi Arabia and the United Arab Emirates are engaged in conflict over Yemen, while US President Donald Trump has ordered a blockade on Venezuelan oil exports and threatened strikes on Iran.

OPEC+ Production Strategy and Supply Concerns

The Organization of the Petroleum Exporting Countries and its allies have paused oil output hikes for the first quarter of 2026 after releasing approximately 2.90 million barrels per day into the market since April. This decision reflects growing concerns about supply-demand imbalances as prices cooled following OPEC+ accelerated output increases.

Most analysts expect supply to exceed demand next year, with estimates ranging from the International Energy Agency's 3.84 million barrels per day to Goldman Sachs' 2.00 million bpd surplus projections. Morgan Stanley's global oil strategist Martijn Rats suggests substantial price declines may prompt OPEC+ cuts: "If the price really has a substantial fall, I would imagine you will see some cuts from OPEC+. But it probably does need to fall quite a bit further from here - maybe in the low $50s."

John Driscoll, managing director of consultancy JTD Energy, expects geopolitical risks to support oil prices despite fundamentals pointing to oversupply: "Everybody's saying it'll get weaker into 2026 and even beyond. But I wouldn't ignore the geopolitics and the Trump factor is going to be playing out because he wants to be involved in everything."