Petronet LNG, ONCG, GAIL, HPCL, BPCL, IOC, Oil India shares: Target prices

Emkay Global on Thursday suggested a ‘Buy’ on oil marketing companies namely Indian Oil Corporation Ltd (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), and suggested ‘Add’ on Oil and Natural Gas Corporation Ltd (ONGC), Oil India Ltd and GAIL (India) Ltd, with 12–29 per cent potential upsides. Petronet LNG Ltd is a 'Buy', it said.

This is even as the domestic brokerage believes the US-Israel war on Iran has hurled the sector into an unprecedented crisis. Emkay said the attacks from both sides have escalated, which has led to Iran closing the vital Strait of Hormuz and shutdown of the landmark Ras Laffan LNG liquefaction plant of Qatar Energy, Ras Tanura refinery of Saudi Aramco, and oilfields in Iraq. 

Brent prices, it noted have spiked to over $80 a barrel level, while spot LNG and diesel cracks also doubled week-on-week to $25/mmBtu and $30-40 per bbl, respectively. 

Emkay said insurance coverage has been affected, and freight rates have also jumped. 

"India’s crude and LNG flows from the Persian Gulf have stopped since the last two days, affecting 50 per cent of imports of both, while diesel marketing margins are at negative Rs 15 per litre currently. PLNG has already declared force majeure, cutting 7.5mmtpa of the Qatar term contract supplies, while other players like GAIL and Gujarat Gas have also informed their industrial customers," it said. 

OMCs’ production, Emkay said, is not yet affected due to 30-35 days of crude oil stocks (including SPR) along with 20-30 days of products, but extension of the Hormuz blockade will impact refining runs and final supplies ahead. 

"LPG stocks are much lower, at 15 days, with over 70 per cent of direct imports. Though visibility on the direction of the conflict is low, we believe the criticality of Middle East energy flows to world markets would drive resolution of the crisis and opening of the Strait, though a week or two may be required for complete normalisation," it said.  

Emkay said upstream is the only direct beneficiary of this situation, as oil and oil-linked gas realisations are up. Standalone refiners can also benefit from near-term spikes in GRMs, while CNG CGDs like Mahanagar Gas (MGL) and Indraprastha Gas (IGL) with more HH LNG exposure are also less worse off.