In the current low crude oil price regime, upstream companies with lower realisation will witness substantial pressure on their profitability.
Even after the consensus to cut oil supply has been made in the OPEC+ meeting, oil prices in the international market are on a fall. The falling oil prices have drastically hit the profitability of Indian oil refineries as lower crude price in international markets directly results in lower sales realisation. In the current low crude oil price regime, it is believed that upstream companies like ONGC and Oil India will witness significantly lower total income during FY21 on account of a sharp deterioration in their price realisation as well as lower production for the next two quarters, according to a report by Care Ratings.
Travel restrictions around the world and low demand for oil have brought down the price of Brent crude oil to below $28 a barrel today. Oil consumption worldwide is down nearly 30 per cent while investors have grown more skeptical about the abilities of major producers to stabilise the market. The crude prices in the US have fallen to a 21-year low as storage capacity is running out.
April is expected to be the bleakest month for the industry, with demand set to plummet by 29 million barrels a day compared with the same month last year, said the International Energy Agency. The plunge in demand would be even more damaging for the industry and the millions of people it employs around the world without the historic recent steps announced by OPEC+ and G20 countries, it added. However, on the brighter side, it is expected that if production falls sharply, the second half of 2020 will see demand exceeding supply as a large portion of oil will also go into strategic stocks.