BPCL Share price was trading firm after Goldman Sachs confirmed its positive outlook for oil marketing companies with target price for BPCL at Rs 360. BPCL was trading 2 percent higher in today's session as the stock and touched a high of Rs 267.2 in the first hour of trade. TopNews has checked the technical charts for BPCL and we could see further momentum in this counter.

Goldman Sachs Upgrades Oil Marketing Companies

Shares of India's oil marketing companies (OMCs) gained momentum after Goldman Sachs upgraded their ratings, signaling optimism for the sector's recovery. OMC stocks have declined by an average of 25% from their peak levels in early 2024, with concerns surrounding crude oil discounts and LPG under-recoveries weighing on investor sentiment. However, Goldman Sachs noted that these risks are already factored into current valuations. The brokerage projects a significant improvement in OMCs' free cash flow and financial performance in the coming fiscal years, driven by capped crude oil prices and normalizing margins.

Improving Fiscal Outlook for Oil Marketing Companies

Financial Recovery Expected:
Goldman Sachs anticipates a free cash flow recovery for OMCs beginning in the next fiscal year, a trend that has historically driven stock price performance. The report emphasizes that upside risks from crude oil prices are limited, which provides a more favorable financial landscape for the sector.

Historical Declines Priced In:
OMC stocks have experienced a 25% decline on average since early 2024, largely due to concerns over reduced crude oil discounts and under-recovery in LPG sales. According to Goldman Sachs, these issues appear to have been priced into the market, offering investors a more attractive risk-reward balance.

Valuation Scenarios: Base, Bull, and Bear Cases

Goldman Sachs outlined multiple valuation scenarios for OMCs, depending on how market conditions evolve:

Base Case: Assumes normalized marketing margins and crude discounts, providing a steady recovery in financials.
Bull Case: Envisions a return of higher discounts on Russian crude and potential LPG subsidies, which could significantly enhance profitability.
Bear Case: Projects lower marketing and refining margins, posing risks to short-term financial performance.
These scenarios highlight the various factors that could influence OMC valuations in the near term.

Technical Analysis Insights

Candlestick Patterns:
Recent daily charts indicate the formation of a green candle, suggesting buyer dominance in the session. This pattern signals potential upward momentum in the near term.

Fibonacci Levels:
Applying Fibonacci retracement from the 52-week high of Rs 376.00 to the 52-week low of Rs 242.20, the following key levels are observed:

23.6% Retracement: Rs 276
38.2% Retracement: Rs 303
50% Retracement: Rs 309
61.8% Retracement: Rs 335
These levels serve as potential support and resistance points, offering guidance to investors.

Support and Resistance Levels:
The current analysis identifies support at Rs 168 and resistance at Rs 278. Additionally, the Relative Strength Index (RSI) below 30 indicates strong negative momentum in the short term, urging caution for investors.

Financial Performance Overview

BPCL's revenue from operations for the December quarter stood at Rs 1.28 trillion, reflecting a 2% decline from the previous year. The company's average gross refining margin fell to $5.95 per barrel for the April to December period, compared to $14.72 per barrel in the previous year. Additionally, BPCL incurred a Rs 72.29 billion loss due to the disparity between market-determined and subsidized LPG cylinder prices.

Strategic Investment in Indonesia

Demonstrating its commitment to expanding its global footprint, BPCL has announced a $121 million investment to develop the Nunukan oil and gas block in Indonesia. Through its exploration arm, Bharat PetroResources, BPCL holds a 16.23% stake in the block, which is operated by Indonesia's Pertamina. The company is currently in the process of securing necessary approvals from Indonesian regulators to proceed with the development.

Key Drivers for Sector Performance

Crude Oil Price Stability:
Goldman Sachs noted that upside risks to crude oil prices remain capped, reducing volatility for OMCs. Stable crude prices allow companies to better manage their marketing margins and overall profitability.

Normalization of Margins:
A return to normalized marketing and refining margins is anticipated to provide a steady foundation for OMCs’ earnings growth. Additionally, any restoration of LPG subsidies would serve as a further tailwind for the sector.