ONGC, Oil India gain 3% in tandem with crude oil prices

Crude oil prices increased around 6 per cent on Tuesday amid news reports of lower supply by oil producers and easing of lockdown restrictions in parts of China

Shares of state-owned oil exploration & production companies like Oil and Natural Gas Corporation (ONGC) and Oil India gained 3 per cent on the BSE in Wednesday's intra-day trade in an otherwise subdued market after oil prices surged. Crude oil prices increased around 6 per cent on Tuesday amid reports of lower supply by oil producers and easing of lockdown curbs in parts of China.

At 10:47 AM, ONGC and Oil India were up 3 per cent at Rs 173.85 and Rs 237.20, respectively, on the back of heavy volumes. In comparison, the S&P BSE Sensex was up 0.04 per cent at 58,597 points.

Upstream companies like ONGC and Oil India are expected to witness strong earnings on higher oil prices. Oil prices saw a sharp increase amid concern over supply disruption due to the geopolitical conflict in Europe in the quarter that ended March 2022 (Q4FY22). Brent prices have averaged nearly $100/bbl in Q4FY22 with nearly $30/bbl being added during the quarter end due to the Ukraine war.



Analysts at HDFC Securities expect Brent crude price to remain elevated as Organisation of the Petroleum Exporting Countries (OPEC) supply growth is likely to lag behind global demand due to ongoing geopolitical tensions.

"The average Brent crude price in FY22 stood at USD 80/bbl, up 79 per cent YoY, driven by recovery in global demand with opening up of economies. However, the OPEC supply is lagging behind demand growth due to Russian invasion of Ukraine. Despite the fact that no restrictions were imposed on crude oil import from Russia currently, some off-takers have shunned Russian oil due to uncertainties around insurance, shipping, etc. because of sanctions," the brokerage firm added.

The US Energy Information Administration (EIA) also estimates that the growth in global crude oil supply will suffer in 2022.

Analysts expect an upside risk to crude oil prices as product inventory levels drop below the five-year range. "Every USD 10/bbl change in net oil price realisation changes ONGC’s FY23E earnings by Rs 7.1/share (10.9 per cent) and Oil India's earnings by Rs 7.6/share (7.7 per cent)", the brokerage firm added. 

Technical view
ONGC

Bias: Positive 

Target: Rs 180

Support: Rs 169.50

The stock is currently trading with a positive bias as per the price-to-moving averages action on both, the daily and the weekly charts. However, the momentum oscillators are presenting a mixed picture for now.

As per the daily charts, following today's sharp up move, the stock has managed to trade and hold above its 20-DMA (Daily Moving Average) placed at Rs 171. Sustained trade above this level can help the stock spurt to Rs 180-odd levels. The near-term bias is likely to remain positive as long as the stock holds above Rs 169 - its 50-DMA.

Among the key momentum oscillators on the daily charts, the MACD (Moving Average Convergence and Divergence) and the Slow Stochastic have given a minor buy signal. The 14-day RSI (Relative Strength Index) is in neutral zone, while the DI (Directional Index) indicates lack of strength of the existing trend.

Whereas as per the weekly momentum oscillators, the Slow Stochastic is clearly in favour of the bears, and the MACD too is showing signs of tiredness. Thus, it seems that the up move at the counter may be short-lived.

Oil India

Bias: Range-bound

Support: Rs 225

Resistance: Rs 245

The stock seems to be consolidating in a broad trading range of Rs 225 to Rs 245 since early March. The momentum osciallators on the daily charts, too indicate indecisiveness at current levels. The trend line indicates strong support around Rs 220-odd levels.

A break on the upside, can result in a jump towards Rs 260-odd levels. Whereas, sustained trade below Rs 220-odd level, can trigger a fall towards Rs 197 indicates the weekly chart.

(With inputs from Rex Cano)