Oil India, ONGC dip up to 6% as crude oil prices fall on demand concerns

While upstream earnings are currently impacted, with the OPEC+ delaying its planned rise in production, analysts at Prabhudas Lilladher expect oil prices to rebound to $75-80 per barrel soon.

Shares of state-owned upstream oil companies Oil and Natural Gas Corporation (ONGC) and Oil India dipped up to 6 per cent on the BSE in Wednesday’s intra-day on profit booking as crude oil prices were trading near three years low on concerns over a weak demand outlook.

Shares of Oil India have dipped 6.4 per cent to Rs 570 on the BSE in intra-day trade. With today’s decline, the stock has fallen 26 per cent from its record high level of Rs 767.30 that it touched on August 30.

Separately, the stock price of ONGC was down nearly 3 per cent to Rs 287.30. The company's stock has declined 17 per cent from its all-time high level of Rs 344.60 that it hit on August 1.

Recent global developments leading to ample supplies amid weaker demand prospects have pushed Brent oil prices below $70 per barrel. 

While upstream earnings are currently impacted, with the Organization of the Petroleum Exporting Countries (OPEC+) delaying its planned rise in production, analysts at Prabhudas Lilladher expect oil prices to rebound to $75-80 per barrel in the near term.

Analysts at the brokerage firm noted that net oil realisation should bounce back to around $75 per barrel. Additionally, Administered Pricing Mechanism (APM) price is set to rise in FY26E and gas produced from new wells would attract premium pricing, they added. These bode well for upstream players, the analysts said in their oil and gas sector update.

The brokerage firm also upgraded its rating on ONGC from ‘Hold’ to ‘Accumulate’ with a target price of Rs 329 based on 9x FY26 adjusted EPS, in addition to the value of the company's investments.

It maintained the ‘Buy’ rating on Oil India with a target price of Rs 786, based on 12x FY26 adjusted EPS, in addition to the value of investments.

Gas produced from new wells will see a 20 per cent premium over the APM price, which is determined monthly at 10 per cent of the imported Indian crude basket and capped at $6.5 per metric million British Thermal unit (mmBtu).

Consequently, incremental gas produced by ONGC and Oil India will benefit from better realisations. Additionally, the APM ceiling price is set to be revised to $6.75/mmBtu from FY26. Thus, gas realisation looks to be rising for upstream companies, the brokerage firm stated.

ONGC’s Q1FY25 gas price realisation of Rs 21.1 per standard cubic metre (scm) was flattish quarter-on-quarter (QoQ), driven by APM gas price capped at $6.5/mmbtu for FY24/25.

However, given the KG basin’s gas eligibility for premium pricing and the recent proposal for new well production to get a 20 per cent premium to APM prices, analysts at ICICI Securities see net gas realisation averaging Rs 22.6 per scm over FY25–27E, above Rs 19.7 per scm seen in FY24.

The brokerage noted that these prices compare quite favourably with FY18–23’s average blended price of Rs 10.9/scm.

Moreover, analysts at ICICI Securities cited stronger cash flow and production outlook, meatier subsidiary earnings over the next two to three years and higher investment value of listed investments as reasons behind increasing the target price of ONGC to Rs 375, analysts said.

A sharp reversal in oil and gas price trends, slower-than-expected ramp up of production from KG basin and any unexpected regulatory setbacks are keys down risks for the target price, ICICI Securities further noted.