ONGC, Oil India hit 52-week high as crude oil prices rise

The rise in crude oil prices boosts the net realization of oil and gas explorers. Companies have already seen a sharp jump in realizations during the June quarter. ONGC’s net realization of crude oil was up 128% YoY and 13% sequentially at $65.6 per barrel. Oil India’s net realization rose 123% year-on-year and 11.7% sequentially to $67 a barrel. Strong oil prices in the September quarter have also kept the earnings outlook of these companies strong. To be sure, the oil production of the two big companies has remained stagnant and has not seen any significant growth in recent times.

Their outlook is further boosted by the fact that gas prices are likely to see an upward revision. An increase in international gas and spot prices means that domestic gas prices could rise significantly. Rating agency ICRA expects domestic gas prices to almost double in the next revision due to increase in prices at various international centres. With the prices applicable from October 1, the earnings of the upstream companies will increase further.

Analysts at HDFC Securities Ltd after Q1 results had said their positive recommendation on ONGC is based on the rise in crude oil prices and improvement in domestic gas prices. He expects oil to rise to $59 a barrel in FY22 and $61 a barrel in FY23. These are significantly higher than the $44 per barrel seen in FY21. Expected global economic rebound post-Covid, and lower crude inventories in the US are likely to boost oil prices.