CLSA has turned bullish on Oil And Natural Gas Corporation Ltd. and Oil India in the oil and gas space, arguing that crude oil markets could tighten further over the next two to three months as strategic reserves become harder to draw down and Asian import demand recovers. ONGC offers the highest potential upside at 71%, while Oil India has 12.4% upside to the brokerage’s target.
The brokerage’s report, titled So tight, yet so light, said around 70% of the more than 1 billion-barrel supply shortfall from Strait of Hormuz countries between March and July 2026 had been met through releases from strategic reserves in China, the US and other Organisation for Economic Co-operation and Development countries. CLSA expects this temporary support to weaken, potentially pushing crude prices higher.
CLSA has a ‘High-Conviction Outperform’ rating on Oil And Natural Gas Corporation Ltd. and a target price of Rs 405, which implies 71% upside. The brokerage said the stock was pricing in a Brent crude price below the current level, limiting downside even if supply from the Organisation of the Petroleum Exporting Countries increases.
CLSA said management’s confidence around strong production growth over the next three years was encouraging. ONGC also offers a dividend yield of around 6%, while its valuation remains about 20% below the global peer average and that of Oil India.
The brokerage expects production ramp-up through the second half of FY26 to be a key catalyst for the stock. Development activity in Mozambique could provide additional value, although CLSA said this opportunity may still be a few quarters away.
CLSA values ONGC’s core business at 8 times price-to-earnings, a 10% premium to its historical 10-year average, and adds the value of its listed investments after applying a 20% holding-company discount to the relevant assets.
CLSA has an ‘Outperform’ rating on Oil India and a target price of Rs 550, implying 12.4% upside. The brokerage said the stock was pricing in a lower crude price than the level it expects, creating room for further gains if oil prices rise.
Oil India’s management has guided for a steep increase in oil and gas production over the next three to four years. CLSA expects this growth to build gradually, with the northeastern gas grid and expansion of Numaligarh Refinery playing important roles.
The brokerage said commissioning of the expanded Numaligarh refinery, planned for late FY27, could provide another growth catalyst. Delivery on the company’s production guidance and the start-up of expanded capacity are therefore key triggers for the stock.
CLSA values Oil India’s core earnings at 8 times price-to-earnings, the same multiple used for ONGC, reflecting its strong production growth outlook. It then adds the value of listed investments after applying a 20% holding-company discount.
CLSA said the crude market could become tighter because the measures that helped absorb the supply disruption may be approaching their practical limits. The brokerage expects the non-US portion of the International Energy Agency’s announced 400 million-barrel strategic oil release to be largely completed within the next two to three months.
At the same time, Japan and South Korea may become less willing to continue drawing down strategic reserves if the disruption persists. CLSA estimates that this could normalise imports and increase crude demand by around 1 million barrels per day.
China is another potential source of demand. The brokerage said Chinese crude imports fell by around 0.42 billion barrels between March and July, but the trend reversed in July. CLSA expects further pressure on strategic inventories could eventually force China to increase imports.
The report also pointed to the unusually steep backwardation in Brent futures. The three-month versus one-month spread stood at US$4.2 a barrel, while the six-month versus one-month spread was US$9.6 a barrel. Despite this, net-long positioning in crude futures remained relatively low, suggesting traders had not fully positioned for a prolonged supply squeeze.
CLSA said any improvement in trading confidence, combined with higher Chinese imports and limited prospects for near-term supply relief, could push crude prices higher. That would benefit ONGC and Oil India, while creating pressure on downstream oil marketing companies such as Indian Oil, Bharat Petroleum and Hindustan Petroleum.
The brokerage’s oil and gas preference is therefore clearly tilted towards upstream producers, with ONGC offering 71% potential upside to its Rs 405 target and Oil India offering 12.4% upside to its Rs 550 target. The key trigger for both stocks is a tighter crude market, alongside stronger production growth.