/images/ppid_59c68470-image-178893512613652357.webp)
/images/ppid_59c68470-image-178891755929464707.webp)
What is the story about?
Oil India is the top stock pick of Dayanand Mittal, Oil & Gas Research Analyst at JM Financial Institutional Securities, who sees multiple triggers for the company.
“Hence our view is upstream company ONGC, Oil India, particularly Oil India because there are multiple triggers. That is our top pick in the sector that continues, that has done well, but I think there's decent upside even from current levels. It could be a 15% earning compounding story,” he said.
Mittal expects Brent crude to remain elevated at around $80 a barrel for about a year even if the Strait of Hormuz reopens.
Rebuilding of global inventories, which have seen significant depletion during the crisis, could support prices. He estimates that around 1.5-2 billion barrels of oil inventory may have been depleted globally. Replenishing these stocks could add around 2-3 million barrels per day to oil demand if the process takes two years.
He also expects a geopolitical risk premium of around $5 a barrel to remain even after the immediate crisis eases. Together, these factors could keep Brent around $80 a barrel for roughly a year if the Strait of Hormuz reopens. If the strait remains closed, crude could stay elevated for longer.
The pressure is particularly visible in refined products. Around 5-6 million barrels per day of refining capacity has been shut due to disruptions in the Middle East, attacks on Russian refineries and restrictions on Chinese oil-product exports. This has sharply tightened the products market.
Diesel cracks, which have historically averaged around $15-$16 a barrel, have surged to around $50-$60. Mittal estimates that this could push gross refining margins for oil marketing companies (OMCs) that do not pay windfall tax to around $25-$30, compared with a historical $7-$8.
Independent refiners that pay windfall tax could see gross refining margins (GRMs) of around $10-$12, against their historical $6-$7. However, Mittal cautions that these elevated margins are unlikely to be sustainable over the long term.
Indian OMCs are also facing higher crude procurement costs. With Brent around $100 a barrel, Mittal estimates that OMCs could currently be paying around $110-$115 a barrel after transportation costs and crude premiums. This compares with a historical premium of about $5 over one-month Brent.
“Russian crude was a key source of our discount to the benchmark, which used to be $3-5 pre-Iran crisis. That tends to be now about $3-5 premium.”
Watch the full conversation here
Within the OMC space, Mittal remains cautious. He says the weakness in share prices has brought the stocks closer to fair value and believes downside could be limited from current levels, but he sees limited upside given his crude-price outlook.
ONGC is his second preference among upstream companies. In the gas space, he likes GAIL and Petronet LNG, but sees them as longer-term opportunities because spot LNG prices remain elevated at around $25. He expects meaningful moderation only after new LNG capacity starts coming on stream over the next 12-18 months.
“Gas names, though we like GAIL and Petronet, I think it's more like a 18 to 24 month story.”
Catch all the latest updates from the stock market here
“Hence our view is upstream company ONGC, Oil India, particularly Oil India because there are multiple triggers. That is our top pick in the sector that continues, that has done well, but I think there's decent upside even from current levels. It could be a 15% earning compounding story,” he said.
Mittal expects Brent crude to remain elevated at around $80 a barrel for about a year even if the Strait of Hormuz reopens.
Rebuilding of global inventories, which have seen significant depletion during the crisis, could support prices. He estimates that around 1.5-2 billion barrels of oil inventory may have been depleted globally. Replenishing these stocks could add around 2-3 million barrels per day to oil demand if the process takes two years.
He also expects a geopolitical risk premium of around $5 a barrel to remain even after the immediate crisis eases. Together, these factors could keep Brent around $80 a barrel for roughly a year if the Strait of Hormuz reopens. If the strait remains closed, crude could stay elevated for longer.
The pressure is particularly visible in refined products. Around 5-6 million barrels per day of refining capacity has been shut due to disruptions in the Middle East, attacks on Russian refineries and restrictions on Chinese oil-product exports. This has sharply tightened the products market.
Diesel cracks, which have historically averaged around $15-$16 a barrel, have surged to around $50-$60. Mittal estimates that this could push gross refining margins for oil marketing companies (OMCs) that do not pay windfall tax to around $25-$30, compared with a historical $7-$8.
Independent refiners that pay windfall tax could see gross refining margins (GRMs) of around $10-$12, against their historical $6-$7. However, Mittal cautions that these elevated margins are unlikely to be sustainable over the long term.
Indian OMCs are also facing higher crude procurement costs. With Brent around $100 a barrel, Mittal estimates that OMCs could currently be paying around $110-$115 a barrel after transportation costs and crude premiums. This compares with a historical premium of about $5 over one-month Brent.
“Russian crude was a key source of our discount to the benchmark, which used to be $3-5 pre-Iran crisis. That tends to be now about $3-5 premium.”
Watch the full conversation here
Within the OMC space, Mittal remains cautious. He says the weakness in share prices has brought the stocks closer to fair value and believes downside could be limited from current levels, but he sees limited upside given his crude-price outlook.
ONGC is his second preference among upstream companies. In the gas space, he likes GAIL and Petronet LNG, but sees them as longer-term opportunities because spot LNG prices remain elevated at around $25. He expects meaningful moderation only after new LNG capacity starts coming on stream over the next 12-18 months.
“Gas names, though we like GAIL and Petronet, I think it's more like a 18 to 24 month story.”
Catch all the latest updates from the stock market here
/images/ppid_59c68470-image-178892752778714521.webp)
/images/ppid_59c68470-image-178896753822429506.webp)
/images/ppid_59c68470-image-178893252569524586.webp)