Kotak positive on GAIL, ONGC after OPEC production cut decision

It further expects Brent crude price to average $71.5 a barrel for FY2019 versus its earlier assumption of $80 a barrel, while retaining its assumption of $72.5 a barrel for FY20.

Based on International Energy Agency's (IEA) forecast, Kotak estimates that incremental non-OPEC supply supported by rising production from the US in CY2019 will now barely exceed incremental oil demand of 1.4 million barrels per day assuming OPEC and its allies manage supplies through the year.

IEA's estimate of 1.9 million barrels per day of increase in non-OPEC supply before these announcements will be adequately curtailed, if these factors are assumed (1) a reasonable compliance for 0.4 million barrels per day of production cut by Russia and other non-OPEC countries, and (2) 0.2 million barrels per day of average reduction by Canada's Alberta province, it added.

Brent crude futures, the international benchmark for oil prices, traded at around $61-62 a barrel at the time of writing this article. It fell around 28 percent from the level of $86.29 a barrel touched in October 2018.

Therefore, Kotak reiterated its positive view on GAIL, ONGC and Petronet LNG, expecting the first two to gain amid an environment of steady or gradual recovery in crude prices in the near term.

However, the research house retained its negative stance on downstream PSUs, even as rangebound global crude prices may ease the operating environment.

According to the research house, any further restraint on Iran oil exports by the US from May 2019 may tighten oil markets.

The 180-day waiver period given by the US government will expire in early-May 2019.

"Iran maybe exporting around 1 million barrels per day currently and any reduction may tighten the oil markets, especially around seasonally strong demand during summers. OPEC+ may consider restoring production partly or fully to address the situation," it said.