Crude oil shock: ONGC, Oil India extend fall; tank up to 7%
Premium- ONGC was down 6.50% as of 12.17 pm on BSE while Oil India fell 8%.
Shares of oil explorers and producers dipped on Wednesday amid worries on a slump in crude oil prices. The state-owned Oil India and Oil Natural Gas Corporation (ONGC) tanked under selling pressure, and fell up to 7% on the BSE in Wednesday's intra-day trade. ONGC was down 6.50% as of 12.17 pm on BSE while Oil India fell 8%.
The explorers have also come under pressure after the government imposed windfall tax on oil producers.
Moody's expects the government measures to be temporary and the taxes to be eventually adjusted, as per the rating company's note.
ONGC is unlikely to suffer a “material" dent to their credit quality from the government's decision to levy additional taxes on local fuel exports and oil production given already elevated crude prices, Moody's said on Tuesday.
“While profits generated from oil exports will fall because of windfall taxes, they will likely remain higher than the levels over April 2020 to March 2022 if refining margins are sustained at the highs seen in April to June this year," wrote Moody’s analyst Hui Ting Sim in a note. “High crude oil prices will support the earnings of oil producers."
Oil tumbles 9%
Crude oil prices tumbled 9% on Tuesday, hit by worries of demand destruction, which could bring down inflation for India, the world's third-largest importer.
"Headline worries still remain the same with regards to a possible recession and high inflation. The markets are positive only on the back of cooling of crude prices," said Prashanth Tapse, vice-president (research), Mehta Equities.
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Market is expecting crude prices to fall below $100 per barrel in case of a recession in global economy, which will substantially bring down domestic inflation, Tapse added.
Interest rates and inflation worries have weighed on Nifty and Sensex, with the indexes falling over 8% so far this year.
Crude oil may slump to $45 by end-2023: Citi
On Tuesday, Citigroup came out with a report saying that crude oil could collapse to $65 a barrel by the end of this year and slump to $45 by end-2023 if a demand-crippling recession hits the global economy.
In the note, Citi analysts added, “For oil, the historical evidence suggests that oil demand goes negative only in the worst global recessions. But oil prices fall in all recessions to roughly the marginal cost."
However, Saudi Arabia, the world's top oil exporter, has raised August crude oil prices for Asian buyers to near record levels amid tight supply.
Global brokerage firm JPMorgan has shocked everyone as its report estimated that oil prices globally could reach a “stratospheric" $380 a barrel if the US and European penalties prompt Russia to inflict retaliatory crude-output cuts.
“MCX crude oil prices are expected to trade with a negative bias due to worries over lower fuel demand and significant increase in US oil production. It is trading below the support levels of ₹7,965. As long as it sustains below this level, it is likely to correct towards ₹7,500 levels in coming sessions," ICICI Securities said in its report on Wednesday.