Shares of several oil and gas producers, including Oil and Natural Gas Corporation (ONGC), Indian Oil, Reliance Industries, and Bharat Petroleum Corporation Limited (BPCL), were trading in the red as crude has fallen given China lockdowns are causing demand fears.
However, ONGC and Oil India remained global brokerage CLSA’s top ‘buys’ as these companies are pricing in Brent at $50 per barrel, even without assuming a gas price hike.
“The recent reduction in windfall tax suggests the government will protect realisation of $75-80/bbl, which offers huge upside. While we do not model any price hikes, the domestic gas price should rise by over 50 percent in October if the formula is adhered to. This could be an option value worth over 40 percent of the current stock price,” the brokerage said in its latest report.
The brokerage report came a day after the government raised the tax on the export of diesel and jet fuel (ATF) and hiked the windfall profit levy on domestically-produced crude oil in line with rising product margins and oil prices.
How oil and gas stocks were faring around noon
| Stock | Change |
| ATGL | 1.57% |
| IGL | 1.37% |
| MGL | 0.96% |
| GUJGASLTD | 0.62% |
| CASTROLIND | 0.57% |
| OIL | -0.21% |
| IOC | -0.21% |
| GAIL | -0.26% |
| RELIANCE | -0.28% |
| GSPL | -0.63% |
| HINDPETRO | -0.69% |
| BPCL | -1.13% |
| PETRONET | -1.21% |
| AEGISCHEM | -1.21% |
| ONGC | -1.56% |
CLSA pointed out diesel and aviation turbine fuel (ATF) spreads have surged to near record levels, driving a big rise in August GRMs, which is the amount that refiners earn from turning every barrel of crude oil into refined fuel products.
It also said that marketing losses remain high in diesel, but refining strength and lower crude prices (US$10/bbl QoQ) have driven up integrated margins.
"This is positive for BPCL/IOCL but a worry for HPCL due to its low refining integration," CLSA explained.
The brokerage noted that Indian oil demand rose 6.1 percent YoY in July (declined 6.2 percent month-on-month) as demand for all key products rose. Gasoline/diesel/ATF demand strengthened 6.8 percent/8.2 percent/84.4 percent YoY respectively.
Globally, Brent crude remained below $95 a barrel on Friday amid bets that OPEC+ will discuss output cuts at a meeting on Sept. 5, though fears of China's COVID-19 curbs and weak global growth continued to limit gains and a potential cap on the price of Russian exports loomed.
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