Shares of state-owned oil marketing companies (OMCs) traded higher on Wednesday after Morgan Stanley turned more constructive on the sector, arguing that Asian refiners are entering a new “Golden Age” driven by structurally stronger refining margins.
HPCL led the gains, rising nearly 2%, while BPCL advanced over 1.1% and Indian Oil Corporation (IOCL) gained more than 1% during the session.
The brokerage reiterated its Overweight rating on all three companies while raising target prices across the board. Morgan Stanley now values IOCL at Rs 217 (up from Rs 202), implying around 58% upside, HPCL at Rs 588 (from Rs 511), suggesting 52% upside, and BPCL at Rs 444 (from Rs 385), indicating about 46% upside.
Preferred plays
According to the brokerage, fuel markets have successfully weathered three major shocks over the past six years and emerged stronger after each episode, reinforcing its positive view on the global refining cycle. “We see more legs to our bullish fuel refining cycle view,” Morgan Stanley said, adding that Asian refiners are likely to benefit from a structurally higher mid-cycle profitability than investors currently expect.
Within Asia, Morgan Stanley’s preferred refining names include HPCL, Thai Oil, PTTGC, S-Oil, Cosmo Energy, Bangchak Petroleum and IOC.
The brokerage prefers refiners in India, Thailand and South Korea, arguing that they are better positioned than peers to benefit from tighter refining markets. In contrast, it remains more selective on Chinese refiners due to weaker domestic fuel demand.
Why Morgan Stanley Is Bullish
The brokerage believes the market is overestimating future refining capacity additions while underestimating disruptions to existing capacity, creating a tighter supply-demand balance that should support refining margins over the medium term.
The brokerage estimates that more than 2.3 million barrels per day of planned refining capacity globally could face delays or operational challenges, keeping product markets tighter than expected.
At the same time, stronger-than-anticipated fuel demand — particularly for diesel — could further support refining spreads. Morgan Stanley noted that Asian refiners derive roughly half of their refining exposure from diesel, positioning them to benefit if diesel margins remain elevated.
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