The recent rally in crude oil prices could provide a significant boost to both upstream oil producers and oil marketing companies (OMCs) in India, according to a report by Kotak Institutional Equities. The brokerage noted that the surge in global oil prices is strengthening earnings prospects for upstream companies while also potentially improving marketing margins for OMCs, provided domestic fuel prices remain unchanged.
Brent Crude Rally Strengthens Upstream Earnings
The report highlights that Brent crude oil prices have climbed nearly 15% since early June, rising from around $74 per barrel to approximately $85 per barrel. This sharp increase is expected to directly benefit upstream oil producers by improving their realizations and profitability. These estimates assume no change in government levies on crude production. Kotak’s base-case scenario for ONGC already assumes an oil price of US$80 per barrel, meaning current price levels could offer additional upside.
Kotak Maintains Preference for Upstream Stocks
Despite ongoing volatility in global crude markets, the brokerage believes that higher oil prices clearly benefit upstream producers and may not significantly hurt OMCs in the short term.
As a result, Kotak Institutional Equities continues to favour upstream companies, particularly:
*Oil and Natural Gas Corporation
*Oil India Limited
As reported by msn.com, the brokerage notes that sustained crude price strength could further improve their earnings outlook in the coming quarters.
