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Falling crude oil prices send ONGC and Oil India into a skid

Global crude oil is still up 42 percent this year on supply concerns

Mumbai / June 20, 2022 / 10:29 AM IST
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Shares of Oil and Natural Gas Corporation and Oil India fell on June 20 tracking the sharp sell-off in global crude oil prices.

Brent crude oil prices plummeted over 5 percent on Friday and have fallen nearly 10 percent over the past few days amid rising concerns over global demand for the commodity.

Rising bets of a recession in the US and the European Union over the next 12 months along with slowing demand in China has forced traders to pare their optimism for the commodity despite persistent supply-side issues.

“With rapidly slowing growth momentum and a Fed committed to restoring price stability, we believe a mild recession starting in Q4 2022 is now more likely than not,” investment bank Nomura said in a note on June 19.

That said, global crude oil is still up 42 percent this year given concerns that supply will remain tight due to sanctions imposed by the West on Russian oil.

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Rising oil prices had been one of the driving forces behind the outperformance by ONGC and Oil India in 2022 so far. While shares of Oil India are still higher by 18 percent for the year, those of ONGC are now down 5.5 percent after the recent correction.

Fuelling concerns over these stocks is the likely imposition of a windfall tax on the firms' earnings to compensate for the cuts in excise duty taken by the government to provide relief to consumers.

Brokerages, however, still remain optimistic that crude oil prices will sustain above the $100 per barrel mark for the remainder of 2022-23 in effect providing a boost to earnings of ONGC and Oil India. Further, domestic natural gas prices are expected to be hiked sharply at the upcoming September review that could further boost earnings for ONGC and Oil India.

At 10:15 am, shares of ONGC were down 4.6 percent at Rs 134.9 on the National Stock Exchange while those of Oil India cracked 7.2 percent to Rs 235.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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first published: Jun 20, 2022 10:29 am
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