Oil India, ONGC surge up to 6% in weak market on rising crude oil prices

In one month, ONGC (down 6%) and Oil India (down 17%) have underperformed the Sensex, which down less than 1% as the lower crude price momentum has led to correction in state-owned upstream companies.

Upstream cos in focus: Shares of upstream companies Oil India and Oil and Natural Gas Corporation (ONGC) have gained up to 6 per cent on the BSE in Friday’s intra-day trade amid rising crude oil prices on escalating tensions in the Middle East. 

Brent crude soared over 5 per cent on Thursday, October 3, 2024, marking its biggest rise in a year.

Shares of Oil India have rallied 6 per cent to Rs 568.65 on back of two-fold jumps in average trading volumes. ONGC gained nearly 3 per cent to Rs 299.55 on the BSE. In comparison, the BSE Sensex was down 0.6 per cent at 82,010, at 01:19 pm.

 

However, in one month, ONGC (down 6 per cent) and Oil India (down 17 per cent) have underperformed the market, which is down less than 1 per cent. The lower crude price momentum has led to correction in state-owned upstream companies. 

Meanwhile, Oil India corrected 26 per cent from its record of Rs 767.30, touched on August 30, while ONGC slipped 13 per cent from its all-time high of Rs 344.60 hit on August 1.

According to Reuters, US President Joe Biden said on Thursday that the US is discussing strikes on Iran's oil facilities as retaliation for Tehran's missile attack on Israel, while Israel's military hit Beirut with new air strikes in its battle against Lebanese armed group Hezbollah. CLICK HERE FOR FULL REPORT

Meanwhile, the International Energy Agency (IEA) has continued to moderate its demand assumptions for both CY24 and CY25, even as supply risks continue to mount. However, following the recent corrections, Motilal Oswal Financial Services believe that both ONGC and Oil India are now pricing in the realisation-related risks.

Meanwhile, in September month’s oil & gas sector report, analysts at Emkay Global Financial Services said Indian oil & gas sector sees a mixed impact from lower oil prices with upstream, petchem, and gas sector being affected negatively from lower realisations, deltas, and adverse economics, whereas oil downstream and retailing and lubes should gain from better margins and volumes (if prices are cut). 

However, against a $70/bbl Brent, upstream stock (ONGC and Oil India) correction of about 15 per cent during this period seems excessive, given that they were earning only USD75/bbl due to windfall taxes. 

Thus, analysts have retained their estimates and even at $70/bbl Brent, SA (standalone) earnings per share (EPS) cut would be 6-9 per cent. 

They maintain ‘Buy’ ratings on ONGC and Oil India with a target price of Rs 360 and Rs 700, respectively. For OIL, a $2/bbl drop in NRL’s book GRM results in a 2 per cent annual decline in its consolidated earnings per share (EPS).