The Indian energy sector faced a sharp correction on Wednesday, February 18, 2026, as upstream oil and gas producers witnessed a significant sell-off. Shares of state-run behemoths Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) tumbled by as much as 4 percent, trailing a broader softening in international crude oil benchmarks. This downturn marks a stark contrast to the rally seen in January, as market dynamics shift from supply-security fears to concerns over weakening global realizations and evolving diplomatic landscapes.
Diplomatic Progress Eases Supply Risk Premium
The primary catalyst for the decline is the renewed hope for a diplomatic resolution between the United States and Iran. Recent reports indicate that both nations have reached an understanding on “guiding principles” aimed at resolving their long-standing nuclear dispute. While a final agreement is not yet imminent, the progress has significantly reduced the geopolitical risk premium that was previously baked into oil prices.
As the threat of immediate military action or supply disruptions in the Middle East recedes, global crude prices have retreated. Brent crude futures slipped toward the $67 per barrel mark, while West Texas Intermediate (WTI) traded under $63. For upstream companies like ONGC, whose earnings are directly benchmarked to international prices, every dollar drop in crude realization translates into a substantial hit to the bottom line.
Impact of Lower Realizations on Earnings
The financial sensitivity of Indian upstream players to crude volatility remains high. Industry analysts estimate that a $1 per barrel drop in realized crude prices can impact the annual revenue of companies like ONGC and Oil India by approximately ₹300 crore to ₹400 crore.
The recent decline in international benchmarks directly compresses the profit margins of these producers. While their extraction and operational costs remain relatively fixed, the price they receive for their output has softened. This trend was already visible in ONGC’s recently announced Q3 results, where the company realized over 10 percent lower earnings on every barrel of crude produced compared to the previous year, despite an overall increase in consolidated net profit.
Record Supply Glut Forecasts for 2026
Compounding the pressure from diplomatic shifts is the fundamental outlook for global oil supply. The International Energy Agency (IEA) has reiterated its projection of a significant crude oil surplus in 2026, estimated at over 3.7 million barrels per day. This projected oversupply is driven by rising production from non-OPEC+ nations and a steady increase in inventories in the Atlantic basin.
Furthermore, reports of rising output at major fields like Kazakhstan’s Tengiz—which is expected to reach full capacity by late February—have added to the narrative of a well-supplied market. For investors, these signals suggest that the era of “triple-digit” oil prices may be out of reach for the foreseeable future, prompting a revaluation of upstream stocks.
Domestic Regulatory and Tax Challenges
While global prices are falling, domestic costs for Indian producers remain elevated. The government currently captures nearly 60–70 percent of producer revenue through a combination of royalties and taxes. Although the windfall tax was abolished in late 2024, the hike in Goods and Services Tax (GST) on exploration and production activities from 12 percent to 18 percent continues to weigh on operational expenditures.
The inability to pass on these higher input costs, combined with a “record date” for dividends occurring today for ONGC, has led to some tactical profit-booking as traders look for better entry points in a low-oil-price environment.
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