Crude prices fall below $100; here’s how oil stocks reacted

Domestic equity market remained under pressure on Wednesday, while oil stocks were hammered the most at the bourses as Brent crude, the benchmark price for purchases of oil worldwide, slipped below $100 per barrel. The BSE oil and gas index was the biggest laggard on the sectoral front, led by private oil companies Adani Total Gas and Reliance Industries, which fell up to 5% during the session, amid concerns that declining international crude prices may impact their profitability. Among others, state-owned GAIL (India), Hindustan Petroleum Corporation Ltd (HPCL), Indraprastha Gas, and Indian Oil dipped up to 3%.

The BSE oil & gas index closed 1.43% lower at 17,658 levels, in sync with the broader market. The BSE benchmark Sensex extended loss for the third straight session and declined 372 points to settle at 53,514 levels.

In the oil and gas space, Adani Total Gas was the top loser, ending 4.2% lower at ₹2,680 on the BSE. During the session, the stock declined as much as 5.26% to hit an intraday low of ₹2,651.05. Reliance Industries, the country’s most valued firm, was the second biggest laggard with a 1.77% loss, followed by GAIL India (-1.19%), HPCL (-0.85%), and Indraprastha Gas (-0.59%).

Bucking the trend, Oil and Natural Gas Corporation (ONGC), Bharat Petroleum Corporation Limited (BPCL), Gujarat Gas, and Petronet LNG ended in the positive terrain, gaining in the range of 0.4% to 1.75%.

The fall in crude prices augurs well for oil retailers such as BPCL, Oil India, HPCL, and Gujarat Gas as it would help improve their margins. Oil Marketing Companies (OMCs) have kept petrol and diesel prices unchanged for nearly two months since the day Finance Minister Nirmala Sitharaman announced an excise duty cut of ₹8 on petrol and ₹6 on diesel to ease inflationary pressure on the economy.

What fuelled sell-off in oil stocks?

Oil stocks got slammed after Brent crude plunged around 7.5% in overnight trade on Tuesday to settle below $100 a barrel for the first time in three months due to a weak demand outlook amid fresh lockdowns in China and global economic slowdown as well as a strengthening dollar.

The oil price fell further after OPEC forecasted slower global oil demand growth in 2023. In a monthly report, the Organisation of the Petroleum Exporting Countries (OPEC) said the world oil demand growth will slow to 2.7 million barrel per day (bpd) in 2023, as against the current year’s oil demand growth of 3.36 million bpd. Adding to the woes, the anticipation of U.S. inventory buildups in crude oil and refined products amid weak demand also triggered a sell-off in the market. The U.S. Energy Information Administration (EIA) has projected that natural gas production will rise to 96.23 billion cubic feet per day (bcfd) in 2022 and 99.98 bcfd in 2023.

Reversing some of the losses, crude oil futures were trading marginally higher during Asian trading hours on Wednesday. At the time of reporting, the Brent oil for September delivery was up 0.6% at $100.1 per barrel, while the U.S. West Texas Intermediate (WTI) crude August futures climbed 0.8% to $96.6 a barrel.