Oil & gas index surges nearly 3% amid a rally in oil prices; ONGC climbs 6%

The S&P BSE Oil & Gas index surged nearly 3 per cent to 11,928.27 levels in the intra-day deals on Tuesday amid rise in crude oil prices on expectations that fuel demand will begin to recover as some US states and nations in Europe and Asia start to ease coronavirus lockdown measures.

The US benchmark West Texas Intermediate (WTI) crude futures rose as much as 8.2 per cent to a three-week high of $22.06 per barrel during the day. It is on a five-day win streak that started on April 29. Brent crude futures hit a high of $28.57 a barrel and were up for a sixth straight day, Reuters reported. 

At 10:43 am, the S&P BSE Oil & Gas index was ruling 2.43 per cent higher at 11,873.39 levels. ONGC was the top gainer on the index - up over 6 per cent at Rs 81.40 apiece on the BSE. Other major gainers on the index were Hindustan Petroleum (HPCL), Bharat Petroleum Corporation (BPCL), Reliance Industries (RIL), and Indian Oil Corporation (IOCL) - all were up in the range of 4 to 1.5 per cent. 

In comparison, the benchmark S&P BSE Sensex was trading 296 points or nearly a per cent higher at 32,011.31 levels. 

After a range-bound couple of years of crude price movement, the crude price (brent) has fallen sharply since early March 2020 and has fallen as low as USD 19/bbl. The fall was triggered on account of a supply glut in the market by Saudi Arabia and Russia which was later aggravated on account of a decline in demand for petroleum products due to COVID-19.

To control the damage of COVID-19 in the nation, a nation-wide lockdown has been implemented from March 24, 2020, restricting all non-essential activities till May 03, 2020. With travel restrictions (road as well as air) demand for motor spirit (MS), high-speed diesel (HSD) and aviation turbine fuel (ATF) has come down significantly, notes CARE Ratings in a note dated April 30. 

CARE Ratings believes that the demand for petroleum products will remain sluggish in the near term and H1FY21 will be considerably lower compared to previous quarters.

As regards oil marketing companies (OMCs), the ratings company believes the credit profile of the OMCs will remain strong in near to medium term with higher profits, lower debt, and better liquidity profile. Additionally, given their strategic importance to domestic oil & gas policy and easy access to capital, their credit profile is expected to remain strong.