Indian oil shares swing as Venezuela crisis raises fears of crude supply shocks
Oil stocks have been volatile as the market seems to be pricing in a spike in crude prices owing to prolonged uncertainty and possible supply-chain disruption. However, the lifting of US sanctions on Venezuela and the formation of a pro-US government there could raise supplies significantly.
Shares of Indian oil companies have been volatile over the past three days, after the US removed the president of Venezuela through a military intervention over the weekend. While Indian state-run oil marketing companies (OMCs) Indian Oil Corp. Ltd, Hindustan Petroleum Corp Ltd, and Bharat Petroleum Corp Ltd initially rose up to 2.2% on Monday, they fell by 3-5% intra-day on Tuesday.
The market seems to be pricing in a spike in crude oil prices owing to prolonged uncertainty and possible supply-chain disruption. On the other hand, the lifting of US sanctions on Venezuela and the formation of a pro-US government there could disrupt the oil market by raising global oil supplies significantly.
Venezuela has the world’s largest proven oil reserves, although of heavy and sour grade. It has been unable to raise its production due to a lack of technology to extract these inferior grades. Production has in fact dropped to below 1 million barrels per day (mbpd) from close to 3 mbpd until 2015, because of US sanctions. “A lack of expertise, under-investment, political interference, mis-management, corruption, and then sanctions have paralyzed the exploitation of its oil reserves," noted a PL Capital report on 5 January.
US president Donald Trump plans to push for greater investment in Venezuela’s oil infrastructure to boost production. This could put further pressure on oil prices, which have fallen significantly in recent years, weighed down by rising global supplies and muted demand growth. Brent crude is now at about $60 a barrel, down from a peak of $93 a barrel in September 2023.
“US majors are expected to undertake massive investments to revive Venezuelan production in the medium term. This could weigh on crude prices in 2027-28, unless the Organization of the Petroleum Exporting Countries (OPEC+) decides to balance the market," said a Jefferies India report on 4 January.
How Indian firms could benefit
Back home, upstream major Oil & Natural Gas Corp. Ltd (ONGC) also stands to benefit as it holds stakes in two oilfields in Venezuela – San Cristobal and Carabobo-1. ONGC had acquired these stakes through its subsidiary ONGC Videsh Ltd between 2008 and 2010. Oil India Ltd and IOC also hold a small stake in Carabobo-1. Greater political certainty would help improve output from fields that are now hampered by a lack of equipment and factors.
The lifting of sanctions should also help downstream oil companies start procuring oil from Venezuela, which is cheaper owing to its lower grade. Reliance Industries Ltd has bought around 20% of its daily oil requirement from Venezuela in the past, and the resumption of supplies could give it a cost advantage of $5-8 a barrel, the Jefferies report said.
As oil prices drop, OMCs’ margins should benefit, too. For now, they are expected to post strong Ebitda growth of up to 73% year-on-year in the December quarter (Q3FY26) because of lower oil prices, according to various brokerages. In contrast, ONGC’s Ebitda is projected to decline by up to 14%, weighed down by lower realization.
OMCs’ shares are trading at an enterprise value of 6.2 to 6.4 times estimated FY27 Ebitda, whereas ONGC is trading at 4.5 times, according to Bloomberg. While investors will closely monitor the developments in Venezuela for further cues, US president Trump is also warning of a military intervention in Iran. Any such move could amplify uncertainty.
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