Oil prices at 7-month lows. Here is how they would impact oil stocks

The recent fall in oil prices will be positive for oil marketing companies, neutral for midstream companies and would have no impact on upstream companies such as , ICICIdirect said in a note.

Oil prices fell over the last two weeks by 10 per cent ($92 per barrel), to February 2022 lows led by weakening global demand. The correction in crude prices was on account of a possible recessionary scenario in the west, weak economic data from China (world’s second largest oil consumer), coupled with anticipated interest rate hikes, hinting at lower fuel demand ahead.

Adding to the weakness is China's imposed stringent Covid-19 curbs while its oil imports fell 9.4 per cent YoY in August.

ICICIdirect noted that natural gas prices have also fallen from highs of $70 per mmbtu but continue to remain above comfortable levels.

"The above events will have a limited impact on the net realisation of PSU upstream companies such as ONGC. The impact on midstream companies will be neutral. However, this would improve the marketing margins for OMCs like , , as their marketing profitability may improve," it said.


ICICIdirect said that OMCs , BPCL and HPCL did not pass on the increase in crude oil costs to customers, which resulted in weak marketing margins. Crude oil prices were trading at elevated levels but prices of petrol and diesel at retail outlets were steady, it said, adding that the correction in crude oil prices may improve marketing profitability of these companies.

The brokerage has a 'hold' rating for all listed oil companies. It has a target of Rs 140 per share for ONGC. For (), has a target price of Rs 2,690 per share.

"Over the medium term, the marketing profitability of OMCs is expected to improve," it said while suggesting IOC's target price at Rs 80 per share. For BPCL, it has a target of Rs 350 per share while for HPCL it has a target price of Rs 260 per share.

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