Oil stocks rise up 10%; Oil India, ONGC, HPCL lead rally

Oil stocks, especially state-owned oil marketing companies (OMCs), witnessed a strong rally on Wednesday, as international crude prices edged lower amid unexpected build in U.S. crude and gasoline inventories. The surprise build in the U.S. crude oil stockpiles eased global fuel supply concerns. As per API data, U.S. crude oil inventories increased by about 180,000 barrels for the week ended August 2, compared with a draw of 4.5 million barrels reported in preceding week.

Reacting to API data, Brent crude oil futures for October declined as much 0.66% to $75.97 per barrel during Asian trading on Wednesday, while the West Texas Intermediate (WTI) crude oil slipped 0.84% to $72.58 a barrel. At the time of reporting, Brent crude oil futures were quoting at $76.76 per barrel and the WTI crude oil was at $73.52 a barrel.

Meanwhile, shares of Oil India Ltd (OIL) surged 9.3% intraday today, while Oil and Natural Gas Corporation (ONGC) rallied as much as 9.5%. Among others, Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL), Indian Oil Corporation (IOC), GAIL (India) climbed in the range of 2-4%. Indraprastha Gas (IGL) and Petronet LNG were also trading higher by up to 2%.

Among private players, shares of Reliance Industries gained as much as 1.1%, while Adani Total Gas rose up to 1.7%.

The crude oil prices are likely to remain supported due to supply concerns and geopolitical tensions in the Middle East, Angel One says in a note today. “Iran's vow of retaliation against Israel and the U.S. has heightened concerns about a potential wider conflict in the Middle East, impacting regional oil supplies. Production cuts at Libya's Sharara oilfield and declining crude inventories at major hubs further fueled supply worries,” says Prathamesh Mallya, DVP- Research, Non-Agri Commodities and Currencies, Angel One Ltd.

Mallya adds that despite lowering average oil price forecasts due to economic concerns, the U.S. Energy Information Administration still anticipates higher prices in the coming months.

Prabhudas Lilladher in a recent report says that oil realisation post windfall tax is expected to remain capped at $75 per barrel, while gas realisation, currently at $6.5 per metric million British thermal unit (mmBtu) would rise to $6.75 per mmBtu in FY26. Besides, gas produced from new wells would be priced at a 20% premium over Administered Price Mechanism (APM) price.

As per the recent data released by the Ministry of Petroleum and Natural Gas, upstream companies have been showing a mixed trend in production. While ONGC continues to experience a decline in its production, a stark contrast can be seen in Oil India which has shown significant improvement in both oil and gas outputs. In FY24, Oil India’s oil and gas production from nominated fields stood at 3.3mmt (up 6% YoY) and 3.1bcm (up 1.6% YoY), respectively. In the case of ONGC, total oil production from nomination blocks stood at 19.2mmt (down 1.5% YoY), while gas production stood at 19.3bcm (down 3.3% YoY).

“This positive momentum reflects Oil India's robust growth potential guidance of reaching 4mmt of oil and 5bcm of gas by FY26E,” says Prabhudas Lilladher in a report.

For ONGC, the brokerage has changed FY25 estimates due to a cut in volume estimates.

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