A sweet spot for OMCs: Brent at $75-80/bbl to support refiners in near-term; ONGC, Oil India key beneficiaries
The strong pricing power of the Organization of Petroleum Exporting Countries and its allies (OPEC+) will continue to support Brent crude price at $75-80/bbl, which is the fiscal break-even crude price for Saudi Arabia. This is a sweet spot for most oil-marketing companies (OMCs) in India, with Oil India and Oil and Natural Gas Corporation (ONGC) being the top beneficiaries, according to domestic brokerage firm JM Financials.
‘’We maintain ‘Buy’ on ONGC at a target price of ₹205 and Oil India at a target price of ₹315 given strong 6-8 per cent dividend play and also because current market price is discounting ~$55-60/bbl net crude realisation,” said JM Financials.
Brent crude price of $75-80/bbl is a sweet spot for ONGC/Oil India, as it improves visibility for net crude realisation of $75/bbl by eliminating the risk of ad hoc fuel subsidy burden, according to the brokerage.
The International Energy Agency (IEA) expects the refining margins to remain strong in the next few months as refining demand-supply is expected to be in deficit of 1.3 million barrels per day (mmbpd) in 3QCY23 due to demand growth, unplanned refinery outages and limited cushion from inventories.
‘’However, optimism on OMCs will be contingent on crude sustaining below ~$75-80/bbl and any reductions in diesel/petrol price ahead of the critical election phase in the next nine months,” said the brokerage.
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Updated: 25 Aug 2023, 06:47 PM IST
Ganesh
http://ganesh@finplay.inFinance enthusiast, Mutual fund expert.