ONGC, Oil India gain as crude prices spike over 5%; OMCs take a beating

Shares of upstream companies such as ONGC and Oil India edged higher in the morning trade on April 3  on the back of a spike in crude oil prices a day after the Organization of the Petroleum Exporting Countries (OPEC) and allies announced a surprise production cut.

Brent crude on Intercontinental Exchange jumped more than 5 percent, as OPEC and allies agreed to trim collective production by another 1.16 million barrels a day from May.

Every $1-a-barrel rise in crude realisation implies a 2-4 percent increase in earnings per share for these two companies, according to analysts’ calculations.

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At 10.15 am, ONGC shares were up 4 percent at Rs 156.80 on the BSE, while Oil India was nearly six percent higher at Rs 266.10.

OPEC shock

On April 2, OPEC’s kingpin Saudi Arabia announced a voluntary output cut of 500,000 barrels a day, starting May, while another key member of the cartel, Iraq, said it would reduce supply by 211,000 barrels a day. Along with this, other members such as UAE, Kuwait and Oman, too, will trim supplies, bringing the total cut to 1.16 million barrels a day.

The move was aimed at market stability as oil prices had suffered heavy losses in March due to fears that emerged out of the banking crisis in the US, OPEC said.

The decision came as a jolt to the market as the cartel already has a 2-million-barrels-per-day production cut in place, which it agreed to in October. The total cut in output now stands at more than 3.5 million barrels a day, effectively 3.5 percent of global supply.

OMCs sink

Shares of oil marketing companies (OMCs), however, took a beating after oil prices gained sharply. Higher oil prices increase the input cost of companies such as Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL).

At 10.11 am, Bharat Petroleum was quoting at Rs 335.45, down 2.5 percent from the previous close. HPCL declined over 4 percent to trade at Rs 232.15.

OMCs in India suffered steep losses last year after they had to hold pump prices despite red-hot crude. OMCs typically revise retail petrol and diesel prices daily based on the rolling average of international benchmark prices over the past 15 days. However, they left prices unchanged in 2022 despite soaring crude prices to control inflation, which dented their bottom line.

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