ONGC, Oil India shares: What's fuelling the rally today?

Shares of Oil India Ltd and ONGC (Oil & Natural Gas Corpn Ltd) climbed up to 5 per cent in Friday's trade as crude oil prices extended their recent run and hit their highest levels in more than two months amid hopes that policy support globally will revive economies and would lift fuel demand, thus improving realisations for upstream companies.

Shares of Oil India climbed 4.55 per cent to Rs 484.65. ONGC shares advanced 3.23 per cent to Rs 253.95. This stock was further boosted by a Jefferies report, where the foreign brokerage suggested a target price of Rs 375 on the stock, saying the 30 per cent correction in the stock over the past three months looks overdone. It reportedly said that the recent regulatory actions bode well for improved profitability.  

To be sure, these upstream companies are expected to report subdued operating profits in Q3, given net decline in crude realisation. ONGC’s oil production may decrease 4.7 per cent YoY in Q3, but gas production could be flat. Oil India’s Q3 oil production is expected to be flat on YoY basis and gas production may rise 0.5 per cent YoY. YES Securities said it expects a decline in net crude realisations for both the companies due to the fall in crude prices, even as gas prices stayed  stable. 

For the December quarter, YES Securities expects a net crude oil realisation of $73.2 per barrel for ONGC. It sees APM gas realisation at $6.5 per mmBtu, while the volume for crude oil is expected to slip  4.7 per cent YoY. It sees ONGC's gas volumes to remain flat YoY and increase 1.2 per cent QoQ. 

The domestic brokerage expects a net crude oil realisation of $73.7 per barrel for Oil India. It sees APM gas realisation at $6.5 per MMBtu. It sees crude oil volume to be flat YoY and decline 2.2 per cent QoQ. It sees gas volumes to increase 0.5 per cent YoY and 3.4 per cent QoQ. 

But things may improve in the ongoing quarter. On Friday, Brent crude futures edged up 22 cents, or 0.3 per cent, to $76.15 a barrel, after closing at its highest level since October 25 in the previous session. The US West Texas Intermediate (WTI) crude also moved up 25 cents, or 0.3 per cent, to $73.38 a barrel. It hit its highest closing on Thursday since October 14.

YES Securities in its Q3 preview note said the oil & gas sector's core performance in Q3FY25 could be a mixed bag, as OMCs and standalone refiners may see a sequential improvement in reported refining performance on stronger core GRMs, despite marginal inventory losses, and stronger marketing margins with marginal adventitious gains adding to the profitability.