InvestorQ : Hi, what is the reason the oil and gas stocks fell so sharply on Monday 20th June?
NISHA Nayak made post

Hi, what is the reason the oil and gas stocks fell so sharply on Monday 20th June?

Priyanka N answered.
12 months ago

On Monday, the energy stocks came under a lot of pressure after the price of Brent crude fell to $113/bbl on global demand concerns. In fact, some of the oil stocks fell as much as 17% from the peak levels. The oil index on the BSE fell by 5% to touch a 3-weeklow as the market apprehension is that the interest rate hikes by the major central banks could slow down the global economy and seriously cut the demand for oil and gas. Among the big losers were MRPL falling 17% in the day and Chennai Petro falling 15% in the day.

The sharp fall in MRPL and CPCL is hardly surprising. These stocks had rallied sharply in the last few months on the back of a sharp spike in the gross refining margins with the benchmark Singapore GRMs crossing $22/bbl. However, as crude prices fall, the GRMs are likely to fall in tandem and weak demand could only worsen this trend. In addition, Oil India fell by 8% after running up sharply amid rising crude prices. Other stocks that also fell sharply included ONGC, Goa Carbon, Adani Total Gas and Hindustan Oil Exploration.

The benchmark Brent Futures, which is the benchmark to price Indian crude basket has fall to around the $113 mark. It was at $124/bbl just a week back. In addition, the spike in the US dollar index (DXY) to a 20 year high is also putting pressure on oil price since oil is denominated I dollars and hence reacts negatively to the dollar strength. That is because, a stronger dollar makes oil more expensive for buyers using other currencies; and remember that some of the biggest imports like China, Japan and India are from Asia.

In the last few months, Crude has been on a boil as the supply could not keep pace with demand. That was largely due to the curbs on Russian crude imports that were placed by the US, UK and the EU after Russia invaded Ukraine and for the human rights violations in Ukraine. That led to crude prices soaring from $70/bbl to $130/bbl in less than 4 months. For now, the oil demand for 2023 is still being pencilled at 2% to 102 million barrels, but an economic slowdown could change equations and that is what markets are worried about.