Crude oil costs are anticipated to rise to $90 per barrel in FY 2023, larger than earlier expectations of $80 per barrel, because the Russia-Ukraine battle continues to place strain. The restricted provide of oil from Russia rigs and curtailed oil manufacturing by OPEC+ international locations will doubtless lead to hovering oil costs, Kotak Securities stated. However, oil and gasoline corporations akin to GAIL (India), Oil & Natural Gas Corp (ONGC), and Oil India Ltd are anticipated to profit from excessive oil costs, and see larger earnings, the brokerage stated. It reiterated its ‘Buy’ score on GAIL inventory, saying it sees a 16 per cent upside at Rs 195 apiece. On Monday, GAIL’s shares closed 0.40 per cent down at Rs 167.95 apiece.
“We expect oil prices to remain elevated in the near term given i) the ongoing uncertainty that oil markets face from the Russian-Ukraine conflict, ii) lower exports of Russian crude oil and petroleum products driven by self-sanctioning and iii) curtailed increases in oil production by the OPEC+ cartel in the near term to ease a tight market,” Kotak Securities stated in a observe Monday.
However, these excessive crude oil costs are anticipated to profit upstream home oil corporations akin to GAIL, particularly because it advantages from the rise of oil in addition to LNG costs. Kotak stated it has reiterated a Buy score for the inventory nonetheless it has upped earnings estimates for the inventory. It sees truthful worth of Rs 195 apiece for the oil and gasoline processing firm. The firm’s inventory is up practically 28 per cent thus far this yr. “We reiterate our BUY rating on GAIL with a FV of Rs195 as it benefits from a rise in profitability of LPG production and LNG marketing segments; elevated spot LNG prices in comparison also augur well for the latter,” the brokerage stated.
Kotak additionally sees an upside to earnings estimate for ONGC and Oil India benefiting from larger oil costs, nonetheless the 2 shares have already issue elevated costs sustaining in FY 2024 estimates. larger leverage of profitability to grease costs because the shares already issue elevated costs sustaining in FY2024E, whereas manufacturing and operational developments present no consolation.
“We retain our SELL rating on ONGC and OIL despite higher leverage of profitability to oil prices as the stocks already factor elevated prices sustaining in FY2024E, while production and operational trends provide no comfort,” Kotak stated. ONGC inventory is up 22 per cent YTD whereas Oil India inventory is up 19 per cent YTD.
In the present yr 2022, international oil costs are anticipated to stay excessive within the close to time period, the brokerage stated, including international demand for oil is witnessing headwinds due the Ukraine battle and resurgence of Covid-19 pandemic in international locations together with China. One, the continuing battle which has impacted international financial progress and therefore dented oil demand and two, a resurgence of the pandemic in China and different international locations are main headwinds this yr, the brokerage added.
Source: www.financialexpress.com”