Crude oil prices fell by about 4% on Thursday after the US Department of Energy called off a refill plan of strategic petroleum reserves, and said that would not happen until after fiscal 2013. With crude oil burning, Indian oil stocks witnessed minimal bouts of broad-based selling in the overall market. JM Financial is optimistic about the three Indian oil and gas stocks as it expects oil markets to tighten further as the EU sanctions on Russian oil take full effect by the end of the current year amid limited OPEC+ excess capacity.
According to the latest report authored by Dayanand Mittal analyst at JM Financial, Brent crude price has slipped below USD 90 per barrel for the first time since last week. Russiainvasion of Ukraine Oil Demand worries due to renewed lockdown in China and global economic slowdown. Therefore, the IEA marginally cut its CY22 global oil demand growth forecast for CY22 by ~0.1mmbpd; However, oil demand concerns are partially offset by the shift from gas to oil demand, given the record high gas prices (equivalent to 3-4x the price of oil).
However, in the note, Mittal highlighted that OECD oil inventories are still 275mmbbl below the 5-year average and OPEC+ made a symbolic cut in output for October’22 by 0.1mmbpd to support oil prices announced, despite its production there has been a steady decrease in the targeted production. ~3.4 mmbpd.
In addition, Mittal’s note said, oil markets may tighten as the EU sanctions on Russian oil take full effect by the end of CY22, amid limited OPEC+ additional capacity of 3-4 mmbpd. In addition, refining demand and supply are expected to remain tight due to continued weakness in China’s refining throughput and limited refining spare capacity outside China.
Following the above, JM Financial maintains ‘Buy’ rating on ONGC with a target price of 205, with a target price of Oil India 265, and Gail . with a target price of 125 per share.
“We maintain procurement on ONGC (TP.) 205), Oil India (Tp.) 265), and Gail (tp.) 125) Because they are the major beneficiaries of high crude oil and gas prices. On CMP, ONGC/Oil India is giving discount on crude oil price of only $50/bbl, which is much less than the net realization of $75/bbl, which could accrue after adjusting for windfall tax,” Mittal said. stated in the note.
Further, the note said, higher crude oil price improves earnings visibility of GAIL’s gas business and downstream businesses, which account for 40-50% of its EBITDA.
In its note, JM Financial Analyst also pointed out that if FY24 net crude oil realization falls below $5.0/bbl, our valuation will change to – 21/share (or -10.3%) for ONGC and – 38/share (or -14.3%) for Oil India. Similarly if gas receipts change by +/- 0.5 USD/mmbtu, their valuation will change by +/- 10/share (or 10.0%) for ONGC and by +/- 22/share (or 8.5%) for Oil India.
ONGC and GAIL shares closed flat on Thursday 132.60 per more 91.25 respectively on the BSE as compared to the previous close. Oil India shares were in the green, however, closed at weak levels 188.30 each.
Currently, Brent crude is trading close to $91 a barrel, down more than 3%, while US West Texas Intermediate futures are down more than 3.3% to trade at around $85.5 a barrel. So far, in the day, both the crude benchmarks have lost around 4%.
On Wednesday, Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, “The global growth slowdown is now almost certain. The Euro-zone, which is gripped by an unprecedented energy crisis, is on the verge of recession. China’s asset market crisis deepens. The latest inflation numbers in the US indicate that the Fed has no option but to remain in a panic for the time being. With all three global growth engines in recession, demand for crude oil to support prices Not likely to remain strong enough at current levels.”
Disclaimer: The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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