ONGC hits 52-week high, Oil India soars 5% amid jump in crude oil prices

Shares of state-owned oil exploration & production companies Oil Natural Gas Corporation (ONGC) and Oil India rallied 5 per cent each on the bourses on higher crude oil prices.

ONGC was up 5 per cent at Rs 130 in the intra-day trade, surpassing its previous high of Rs 128.45 touched on 15 June, 2021. Oil India, meanwhile, hit a fresh 52-week high at Rs 208.80, and has gained 5 per cent on the BSE. In comparison, the S&P BSE Sensex was up mere 0.20 per cent at 58,364 points at 09:49 am.

Oil prices climbed on Wednesday after industry data showed a larger than expected drawdown in crude oil stocks in the United States, the world's largest oil consumer, and on expectations that demand will recover as vaccine roll-outs widen, a Reuters report said.

Brent crude oil rose 39 cents, or 0.5 per cent, to $73.99 a barrel in early trade, while US West Texas Intermediate (WTI) crude climbed 44 cents, or 0.5%, to $70.90 a barrel, it added.

In the past one week, ONGC has outperformed the market by surging 9 per cent, after rating agency ICRA assigned 'AAA' credit rating for non-convertible debentures (NCDs) of the company for Rs 7,500 crore while reaffirming ratings of long-term and short-term facilities with stable outlook. 

The rating reaffirmation takes into account the dominant market position of ONGC in the domestic crude oil and natural gas production business with large proven reserves, globally competitive cost structure, stable performance of its subsidiaries and its healthy financial position.

The ratings also take into account the company’s excellent financial flexibility arising from its moderate gearing, large liquid investments, its sovereign ownership and strategic importance. The company’s production of both oil and gas declined in FY2021 owing to lower offtake by customers (owing to the pandemic) and a natural decline in the fields.

Analysts at HDFC Securities have 'Buy' recommendation on ONGC with a price target of Rs 143 on basis of increase in crude price realisation and improvement in domestic gas price realisation (at USD 2.5/mmbtu). “We expect oil price realisation to increase to ~USD 59/bbl in FY22E and USD 61/bbl in FY23E vs. USD 44/bbl in FY21, given the expected global economic rebound, post COVID,” the brokerage firm said in August report.