ONGC, Oil India shares get a boost as crude oil holds above $100 a barrel

Shares of oil and gas companies including Oil and Natural Gas Corporation (ONGC) and Oil India extended gains on Thursday as crude continued to be above $100 a barrel amid supply concerns.

Oil prices rose on mounting supply tightness concerns amid disruptions to Russian exports, the potential for major producers to cut output, and the partial shutdown of a US refinery.

Brent crude was up 0.5 percent, to $101.79 a barrel at 10:12 am. The benchmark touched three-week highs on Wednesday after the Saudi energy minister flagged the possibility that the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, will cut production to support prices.

ONGC shares rose over a percent in intraday trade, a PTI report suggested that the oil producer has relaunched a tender to sell gas from its KG fields at a higher price of $15 per metric million British thermal unit (mmBtu) as it looks to capitalise on a global surge in energy prices.

The firm sought bids for the sale of 0.75 million standard cubic meters per day of gas for one year from the KG-DWN-98/2 (KG-D5) fields in the Bay of Bengal, according to the tender document cited by PTI.

Chennai Petro shares were down close to 2 percent, a day after the company’s board approved a joint venture with Indian Oil Corporation and seed equity investors to implement 9 million metric tonnes per annum (MMTPA) refinery project at Cauvery Basin refinery for Rs 31,580 crore. Seed equity investors include Axis Bank, HDFC Life, ICICI Bank, ICICI Prudential, SBI Life.

The firm’s board has also approved an equity investment of upto Rs 2,570 crore by Chennai Petroleum Corporation in the JV.

Meanwhile, global brokerage Jefferies is positive on city gas companies as it believes the domestic gas allocation hike has created room to defend earnings before interest, taxes, depreciation, and amortisation (EBITDA)/scm.

Gujarat Gas could surprise positively if it receives its contracted spot volumes in the second half of the fiscal, it said. However, the brokerage sees an earnings downside risk of 7-22 percent if the company fails to procure spot volume at $30.

Independent market expert Kush Ghodasara said oil prices are trading around a 200-day average after reaching an all-time high in February.

"This quick rise in prices has given an edge on margins to oil marketing companies (OMCs) but they had to take a bit hit on profits as the government had not passed on 100 percent to consumers. If the oil price international stays around $95, OMC’s shall have a good quarter," told CNBCTV18.com.

Ghodasara's top pick is Reliance Industries for the long term. "Any correction to Rs 2,400 is an opportunity to buy for a target of Rs 3200 in a year," he said.

He added that if oil prices sustain above $95 for the next two days, then a move to $111 can be expected in a month.

Deven Choksey of KRChoksey also suggests buying any dip in the RIL stock price. "We continue to believe that it is a 25 percent kind of an appreciation provider on a yearly basis at least for the next five years," he told CNBC-TV18.

Sumit Pokharna, Vice President - Fundamental Research, Kotak Securities Ltd believes higher oil and gas prices are positive for upstream exploration companies like ONGC, OIL India, RIL, etc. However, government policies play a crucial role so far as their profitability is concerned, he said.

He is negative on OMCs as he is of the view that OMCs will be under pressure till the time crude oil falls meaningfully or they are allowed to increase the prices.

He highlighted that domestic retail fuel margins have again started to weaken.

"We are very positive on city gas distribution companies like IGL, MGL, and Gujarat Gas from a long-term perspective. Given the government's thrust on less polluting fuels like natural gas and the rising demand for gas, we believe CGDs have strong growth potential. City gas distribution companies are effectively monopolies with strong growth and pricing power," he told CNBCTV18.com.

Pokharna expects crude oil prices to remain elevated given current geo-political issues. Removal of sanctions on Iran or any relief on the Russia-Ukraine issue can lead to crude oil prices cooling down.

"We are heading towards winter and demand for fuel will rise which can again push oil and gas prices higher," he added.