Crude prices surge; OMCs feel the heat
Oil prices surged to ~$74/bbl as OPEC, Russia and other producers continue its production cut stance in 2018.
Saudi Arabia wants to get oil prices near $80/bbl to support the valuation of state energy giant Aramco before an initial public offering, Bloomberg reported. This is supported by geopolitical tensions in the Middle East and decline in production in Venezuela. Despite US shale production growth prices are inching higher day by day.
Upstream companies like ONGC and Oil India would benefit from this surge in prices while downstream companies like HPCL, IOC and BPCL will feel the pinch.
However, we are positive on these OMCs with their earnings drivers intact and attractive valuations. We expect stable growth in their volumes, gradual expansion in marketing margins and firm outlook on GRMs accompanied with capacity expansions.
Oil & Natural Gas Corpn Ltd is currently trading at Rs184.20 up by Rs2.4 or 1.32% from its previous closing of Rs181.80 on the BSE.
Oil India Ltd is currently trading at Rs223.45 up by Rs5.3 or 2.43% from its previous closing of Rs218.15 on the BSE.
Hindustan Petroleum Corporation Ltd is currently trading at Rs306.25 down by Rs13.8 or 4.31% from its previous closing of Rs320.05 on the BSE.
Bharat Petroleum Corporation Ltd is currently trading at Rs385 down by Rs20.15 or 4.97% from its previous closing of Rs405.15 on the BSE.
Indian Oil Corporation Ltd is currently trading at Rs159.60 down by Rs5.35 or 3.24% from its previous closing of Rs164.95 on the BSE.