ONGC, Oil India surge up to 6% as oil prices rise post OPEC+ output cut

Sustained higher crude oil prices and gas realisations can result in better profitability for upstream oil and gas companies, analysts said

Shares of upstream oil and gas companies, Oil and Natural Gas Corporation (ONGC) and Oil India, surged up to 6 per cent on the BSE in Monday's intra-day trade after oil prices rose sharply after OPEC+ announced surprise output cuts.

Among individual stocks, Oil India surged 6.2 per cent to Rs 267.45, while, ONGC rallied 4 per cent to Rs 157. In comparison, the S&P BSE Sensex was down 0.02 per cent at 58,979 at 09:27 am.

Brent oil futures jumped $5.16 to $85.05 a barrel, while US crude climbed $4.88 to $80.55 as reports suggested oil output would be cut by around 1.16 million barrels per day.

The change comes before a virtual meeting of an OPEC+ ministerial panel, which includes Saudi Arabia and Russia, wherein it was expected that the group would stick to 2 million bpd of cuts already in place until the end of 2023, news agency Reuters reported.

According to investment firm Pickering Energy Partners, the latest reductions could lift oil prices by $10 per barrel. Goldman Sachs lifted its forecast for Brent to $95 a barrel by the end of the year and to $100 for 2024, the news agency reported. CLICK HERE FOR FULL REPORT

Meanwhile, domestic gas prices have been kept unchanged at USD8.6/mmBtu on a provisional basis from Apr'23 to Sep'23. The ceiling has been reduced marginally to USD12.1/mmBtu from USD12.5/mmBtu.

Owing to the same, Motilal Oswal Financial Services raise their domestic gas price assumptions for 1HFY24 to USD8.6/mmBtu from USD5.7/mmBtu previously. Subsequently, they raise FY24 standalone EBITDA assumptions by 9 per cent/10 per cent for ONGC/Oil India, respectively, as the brokerage firm expect upstream companies to continue to accrue benefits of high gas prices.

However, upstream companies' net oil realisation would remain unaffected due to the imposition of windfall tax, according to analysts.

"Sustained higher crude oil prices and gas realisations can result in better profitability for ONGC. Periodic revision in windfall taxes will be the key monitorable.  The ramp-up in oil & gas production from KG Basin and overseas assets, value unlocking from subsidiaries and other investments along with lower holding company discount on investments and high dividend yield and payout ratio are key triggers for future price performance," according to analysts at ICICI Securities.

Analysts at Prabhudas Lilladher, meanwhile, have a 'buy' rating on ONGC with a target price of Rs 190 per share. Going forward, with KG98/2 field coming on stream the brokerage firm expects ONGC’s oil and gas production to increase by 4-5 per cent. It plans to increase Columbia oil production to 30000bpd from current 18,000bpd in FY23E, analysts said in their December quarter result update.

Technical View

ONGC
Bias: Positive

Target: Rs 160; Rs 165

Support: Rs 153; Rs 151

With today's over 4 per cent rally, ONGC has bounced back above its 20-DMA (Daily Moving Average) placed at Rs 153 after 13 trading sessions. The overall bias for ONGC remains positive as despite the preceding corrective move, the 20-DMA sustained above the 50-DMA on the daily chart.

In the near-term, Rs 153-level is likely to act as a strong support for the stock, below which the next significant support will be the 50-DMA at Rs 151. On the upside, the stock could test the higher-end of the Bollinger Bands on the daily chart at Rs 160.

On the weekly scale since July 2022, the stock has consistently been making a higher high and higher low. The weekly chart suggests that a break above Rs 160-level, could trigger a rally towards Rs 165 for the stock.

Oil India 

Bias: Positive

Target: Rs 275

Support: Rs 257; Rs 247

Unlike ONGC, Oil India has been on a winning streak in the last six months, up over 44 per cent. The stock is now seen within striking distance of the higher-end of the anticipated trading band at Rs 275, which may act as a hurdle.

Having said that, the bias on the daily scale continues to remain favourable, with the stock bouncing back consistently after dipping below the 20-DMA. The 50-DMA now placed at Rs 247 has acted as a stronger support for the stock since mid-October 2022.

For now, the near-term support of 20-DMA for the stock is placed at Rs 257. 

(With inputs from Rex Cano)