Why have the oil stocks like ONGC and OIL India been doing so well of late?
Answer
Answer
Both the upstream oil companies viz. ONGC and Oil India Ltd have been seeing a lot of buying interest in the last few months due to the sharp spike in crude oil prices. For instance, the price landed crude has risen from $69/bbl in early December 2021 to $139/bbl by late March 2022. Of course, in April, there has been some toning down with oil prices down to $100/bbl, but still 45% higher than the December 2021 prices.
On 13ths April, Wednesday, the stock of Oil and Natural Gas Corporation and Oil India gained 3% apiece on the stock exchanges after the oil prices surged by nearly 5%. This was driven by hopes of lower supply by oil producers and easing of lockdown curbs in parts of China. In the last few days, fears of another stringent lockdown in Shanghai had raised the shackles of another slowdown in oil demand, which now looks like not happening.
There is also the boost from strong Q4 results expectations. For instance, ONGC and Oil India are expected to show strong earnings growth in the fourth quarter on the back of robust oil prices. March quarter has seen one of the fastest growth in oil prices amidst the fears of supply shortfalls due to the Russia Ukraine war. Bent prices through the fourth quarter have bene nearly 40% higher than the average of the previous quarter.
On a yoy basis, the average Brent crude price in FY22 is $80/bbl, higher by nearly 79% yoy. This has been triggered by recovery in global demand and the simultaneous opening up of economies. In addition, the surge in OPEC supply is not living up to its promise putting further pressure on oil prices. There has been no serious restriction on imports of oil and gas from Russia and EU continues to still depend substantially on Russia for their oil and gas.
Most of the analysts on the oil side are pencilling in further upsides to oil prices as product inventory levels drop below the 5-year range. A surge of "$10/bbl change in the crude oil price boosts ONGC’s FY23 EPS by Rs.7 and Oil India’s buy Rs.7.60 per share. Both the stocks are also looking very interestingly poised technically.