Oil and Gas on the Way to Recovery, yet Still Not Sweet

Dynamic Equities | June 12, 2017, midnight


The Oil and Gas sector is among the six core industries in India and plays a key role in influencing decision making for all the other important sections of the economy. India’s economic growth is strongly related to energy demand. Although, Nifty Energy has been among the top two gainers past month and has gained almost 2% past week, Oil and Gas has been on a losing spree since 28th December. The Oil and Gas Index has lost over 4%, slipping to Rs. 307.55 on 6th January 2017 from Rs. 320.56 on December 29th 2016.


What’s burning in the Sector:


Saudi Arabia and Abu Dhabi both are cutting supplies of the Oil. Needless to say, the Oil is about to get more precious even though analysts doubt that all OPEC producers will implement cuts.  OPEC had decided on November 30th 2016 to implement a new combined production target of 32.5 million barrels a day, lower by 1.2 mn bbl/day from the earlier target.


Forecasts:


It appears, in 2017, oil price dynamics will continue to stay uncertain and volatile. The bright spot is that most of the projections, including from the World Bank, signifies that oil price is on recovery path but it is far away from the sweet spot. EIA (Energy Information Administration) forecasts Brent crude oil prices to average $52 per barrel in 2017 as compared to $43 per barrel in 2016, close to 21% upward correction. West Texas Intermediate (WTI) crude oil prices are anticipated to average about $51 per barrel in 2017.


Looking at the next couple of quarters, it does not look unlikely that crude prices may go up in a haste but evidently if the OPEC agreement succeeds and benefits all oil producing countries, then it is not going to be good news for the oil marketing companies even though petrol and diesel prices have been hiked quite successively. The bigger benefit would clearly come to the upstream companies like a Cairn India, Reliance and experts believe that these are the companies which would possibly perform better. In fact, another sector which could do well is the gas sector particularly gas companies like IGL and MGL which obviously benefit when crude prices go up. There is going to be better upsides for these kinds of companies rather than pure oil marketing companies which have truly outperformed pretty well in 2016.


Market Watch:


Chennai Petro share price has gone up from Rs. 256.20 on 27th December 2016 to Rs. 322 on 6th January 2017. This refinery stock has gained approximately 26% in a week’s trade. Deep Industries share price has gained over 5% from Rs. 279.90 on December 27th 2016 to Rs 294 on January 6th 2017. Deep Industry is the Oil Drilling and Exploration firm. Its peer, Aban Offshore went up to Rs. 246.70 on 6th January 2016 from Rs. 225 on December 27th 2016, thus Aban share price gaining approximately 10%. Also, Mahanagar Gas share price went up by approximately 9% from Rs. 773 on December 27th 2016 to Rs. 841 on 6th January 2017.


The market scenario gives dynamism to the sector and keeping in mind the events, it might be wise to lay hands on certain stocks of Oil and Gas Segment.


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