Crude oil prices have been soaring for months, but the sharp uptick seen in recent weeks has taken the commodity to its highest since 2008. Various catalysts for this jump include the already tight supply amid rising demand and the possibility of sanctions of Russian oil as geopolitical tensions escalate. Investors on Dalal Street, however, can ride this rise in crude prices. Analysts at ICICI Direct and those JM Financial have carved out a list of stocks that they believe can benefit from higher crude oil prices. These stocks include ONGC, Gail, IGL, and Oil India. 

Stocks to buy

ONGC
ICICI Direct target price: Rs 225
JM Financial: Rs 230

Analysts at JM Financial said that the current market price ONGC is discounting $60-65/bbl Brent while adding that every $1/bbl rise in crude realisation implies a 2-4% increase in EPS of ONGC. ICICI Direct has upgraded ONGC to a ‘Buy’ rating from ‘Hold’. “We build-in oil realisation at $78.5/bbl for FY24E as oil futures contracts are trending at a higher level,” they added. ONGC has soared 25% so far in 2022. the target prices imply another 25-28% upside.

GAIL
JM Financial: Rs 190

“Higher crude price has improved the earnings visibility for GAIL’s gas trading due to rise in the competitiveness of its US LNG portfolio vs. oil-linked LNG contract,” said JM Financial. Gas trading and downstream businesses constitute nearly 40-50% of GAIL’s overall EBITDA. JM Financial has increased the target price expecting steady growth visibility in its gas transmission business. Currently, the stock is up 19% so far this year, the target price suggests a 21% upside.

Oil India
JM Financial: Rs 300

Similar to ONGC, every $1/bbl rise in crude realisation implies a 2-4% increase in EPS of Oil India. Further, every 10% hike in domestic gas price has a positive impact of 2-5% on Oil India’s valuations, according to JM Financial. Oil India’s share price has rallied 23% so far this year and now trades at Rs 246 per share. The target price hints at an upside of 21%.

Indraprastha Gas
ICICI Direct: Rs 395

The brokerage firm said that higher spot LNG prices will impact CGD companies such as IGL, in the near term amid a shortfall in APM allocation. “We estimate gross margins at | 11/scm and | 11.6/scm in FY23E and FY24E, respectively. We retain BUY rating on Indraprastha Gas on account of better volume growth prospects in medium to long term,” they added. IGL stock is down 22% so far this year at Rs 370 per share. The target price implies 7% upside.