ONGC surges 6%, hits 22-month high on improved outlook; Oil India up 7%

Shares of Oil and Natural Gas Corporation (ONGC) hit a 22-month high of Rs 135.80, surging 6 per cent on the BSE in Tuesday’s intra-day trade on improved outlook. The stock of the state-owned oil exploration and production company was trading at its highest level since November 2019.

The stock of other state-owned oil exploration & production firm, Oil India, rallied 7 per cent to Rs 209.05 on the BSE. It had hit a 52-week high of Rs 214.75 on September 17, 2021. In comparison, the S&P BSE Sensex was up 0.18 per cent at 58,598 points at 12:57 pm.

The global gas prices have continued to see a sharp uptick, driven by many factors, including fundamentals like more extreme weather, post-Covid recovery, past underinvestment and lower inventories. The recent spike is accentuated by hurricanes in the US, supply issues in Russia and low wind power in Europe.

While global prices can correct going ahead, analysts at Emkay Global Financial Services believe that April 20202 asset performance management (APM) gas prices can easily cross USD5/mmbtu (GCV) and if the upcoming winter turns out to be severe, there could be more upsides. The deepwater ceiling may also rise to USD10/mmbtu+ next fiscal.

“We estimate APM to rise from USD1.79/mmbtu currently to USD3 in Oct’21. However, in Apr’22, it could rise to USD5.6 if global prices remain at the current level for the next 3-4 months, which is possible if weather conditions become severe. This bodes well for producers ONGC and Oil India,” the brokerage firm said in its oil & gas sector update.

The annual demand is expected to hit pre-pandemic levels in 2022, according to the International Energy Agency (IEA). This is spurred by the return of vehicular traffic in most of the major countries in the world as well as the improving overall economic outlook.

The recent outperformance of oil & gas stocks brings the focus to ONGC, which has so far been unable to replicate the gains seen by the rest of its peers. We expect a catch-up exercise to be seen in ONGC; the stock can move towards Rs 145 levels, analysts at ICICI Direct Research said.

"The stock witnessed noteworthy delivery based action in August around Rs 112-115. Since then, it has largely hovered around these levels and absorbed the ongoing market volatility. However, it witnessed an up move along with the market recovery. Earlier also, the stock remained quite resilient suggesting prevailing strong positive bias," the brokerage firm said.