ONGC, Oil India set to grow despite crude fall

Shares of Oil & Natural Gas Corp Ltd (ONGC) and Oil India Ltd have risen sharply, significantly outperforming the benchmark Nifty50 index with gains of 38% and 73%, respectively, so far this calendar year. These gains were fuelled by a rise in global crude oil prices, which buoyed the profitability and operating margins of these state-owned energy companies.

- Manvi Agarwal

However, the landscape shifted when crude oil prices declined from around $100/barrel in September to approximately $80/barrel amid a market reversal despite tight supplies and escalating tensions in the Middle East.

This abrupt decline followed a shift in market concerns from supply risks to global economic uncertainties and oil demand. Despite OPEC's decision to extend supply cuts beyond December 2023, oil prices haven't responded significantly. The limited impact is attributed to the realization that the supply cut isn't enough to offset non-OPEC output growth. Moreover, lingering worries about a weakening global economy persist.

This drop in crude prices typically signals reduced net realizations for upstream producers, but the government's windfall tax has kept the outlook optimistic.

This tax was introduced in 2022. When crude prices increase, the windfall taxes also rise, and conversely, they decrease when crude prices decline.