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Stock of oil companies mirrored the slip in crude oil prices dropping by up to 6% amid a massive sell off in equity markets.
Global crude oil prices fell below $50, for the first time in over five-and-a-half years on concerns of glut in global supplies and weakening economic growth. Indian crude oil basket closed at $51.53 per barrel on Monday.
Shares of energy companies fell with investors fearing that fall in crude oil prices could impact revenues.
While shares of Oil and Natural Gas Corporation (ONGC) dropped 5.89%, Oil India Ltd lost 4.78%. Reliance Industries Ltd fell 4.67% and Cairn India fell by 3.47%.
Other companies which saw their stocks tumble include Gail (India) (3.20%), Petronet LNG (3.51%), Indian Oil Corporation (1.32%), BPCL (1.02%) and HPCL (0.82%).
Led by the sharp fall in these stocks, the BSE oil and gas took the biggest hit among the sectoral indices, ending 4.17% lower at 9,498.37. The BSE 30-scrip index, Sensex, plummeted by 855 points.
Credit rating agency Moody's said the ongoing slide in the price of crude oil might force oil companies globally to lower their spending by up to 40% in 2015. Exploration and production (E&P) companies could be the first to be hit, while oilfield services (OFS) and midstream energy operators might feel the knock-on effects of reduced capital spending in the E&P sector.
According to Moody's, offshore contract drillers are likely to have their toughest year since 2009, even as integrated oil majors are the best positioned to react to lower prices.
"If oil prices remain at around $55 per barrel through 2015, most of the lost revenue will hit the E&P companies' bottom lines which will reduce cash flow available for re-investment," said Steven Wood, managing director (corporate finance), Moody's. "As spending in the E&P sector diminishes, oilfield service companies and midstream operators will begin to feel the stress."
While exploration and production companies outside North America will likely reduce spending in a range between 10% and 20%, depending on prices, North American E&P companies will reduce their capital spending by around 20% from the 2014 level, if oil prices average $75 a barrel in 2015. If they slipped below $60 a barrel, spending might be cut by 30-40%, Wood said in the report 'Lower Oil Prices in 2015 Reduce E&P Spending and Raise Risk for OFS Sector'.
The OFS sector's earnings will fall 12-17% if oil prices average $75 a barrel, while an average price below $60 a barrel could drive earnings down by 25-30%.
Major integrated oil companies will fare better, the report said. "Integrated oil companies have been more measured in their response to falling oil prices, typically making investment decisions assuming prices of no more than $50-$60 a barrel, since projects can take years to complete. ExxonMobil, Royal Dutch Shell and Total have announced spending reductions for 2015 while cuts at others, including Chevron and BP, look likely."
