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Oil stocks jump as crude oil prices rally; higher oil prices seen aiding earnings growth

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Shares of oil companies surged in trade on Tuesday following the overnight climb in crude oil prices. Rising brent crude oil price should improve realisation and in turn drive earnings growth for upstream oil companies.

Oil stocks jump as crude oil prices rally; higher oil prices seen aiding earnings growth
Shares of oil companies surged in trade on Tuesday following the overnight climb in crude oil prices.
At 9:43 am, shares of Oil & Natural Gas Corporation (ONGC) jumped 4.7 percent to Rs 154.60 and those of Oil India Ltd (OIL) gained 2.8 percent to Rs 248.4.
Bharat Petroleum Corporation shares were up 0.6 percent at Rs 438.35 and Indian Oil Corporation’s stock rose over 2 percent to Rs 129.
Meanwhile, shares of ONGC touched a new 52-week high at Rs 154.8 and those of Indian Oil Corporation hit a new 52-week high at Rs 130.
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Oil prices eased on Tuesday after climbing to their highest levels in years in the previous session after the Organization of the Petroleum Exporting Countries (OPEC) and allied major oil producers decided to maintain restraint on supply.
The OPEC and its allies including Russia, collectively known as OPEC+, said on Monday it would maintain an agreement to increase oil production only gradually, ignoring calls from the US and India to boost output as the world economy recovers from the coronavirus pandemic.
Oil prices have already surged more than 50 percent this year, a rise that has added to inflationary pressures that crude-consuming nations are concerned will derail recovery from the pandemic.
Rising brent crude oil prices should improve realisation and in turn drive earnings growth for upstream oil companies, according to analysts.
“We estimate a three percent CAGR oil and gas production growth and 28 percent CAGR improvement in realisation for ONGC and OIL over FY21-23E should drive earnings growth of up to 30-45 percent CAGR (FY21-FY23E),” said HDFC Securities in a note last week.
“Every USD$10/bbl change in oil price realisation changes ONGC’s FY23E earnings by INR 7.2/share (19.5 percent) and OIL’s FY23E earnings by INR 8.0/share (11.3 percent),” added HDFC Securities.
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