Oil stocks in free fall as crude tumbles to 5.5-year low

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Mumbai | Updated: December 13, 2014 1:18:41 AM

Even as it is regarded as a big positive for India through its positive impact...

Even as it is regarded as a big positive for India through its positive impact on twin deficits and  inflation, sustained drop in international crude prices have weighed heavy on oil & gas stocks.

Shares of these companies have seen steep declines since November, as the fall in brent crude prices intensified. Brent which is currently trading at a five and half year low of $63 per barrel has lost over 26% in the period. Oil stocks have corrected anywhere between 12-20% in the period while the Sensex has lost about 2%.

oil-graph

On Friday, state-run natural gas transmission company Gail India led the fall, with the scrip closing down 4.6% on BSE — the highest fall in six weeks. ONGC (3.5%) and Oil India (3.4%) followed suit. Shares of private refinery major Reliance Industries slipped 2.5% and Cairn India declined 3.5% from its previous close. The BSE oil & gas index slipped to seven month low and settled 2.6% lower.

The Street has turned its focus on the negative impact of lower crude oil prices on the oil producing firms with analysts raising concerns on future earnings, especially for PSU producer ONGC which is still to see a relief in subsidy burden. The impact of inventory management on the financials of these companies is another closely watched factor .

As per JPMorgan, ONGC could see an EPS (earnings per share) impact of 43% if crude prices averaged $60 per barrel in FY15-16.

For GAIL, despite elimination of the subsidy burden, earnings are expected to remain under pressure as lower crude oil prices bring down LPG and petrochemical realisations.

As the brent prices fell below $80 mark, investors of ONGC witnessed an erosion of R58,263 crore in its market value since November, followed by RIL that saw its market-cap decline by by R37,367 crore.

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