Oil and Natural Gas Corporation (ONGC) and other upstream companies saw a rise in share price levels on Monday, amid elevated geopolitical tensions in West Asia. Brent crude futures were hovering around $75 per barrel, as ongoing conflict between Israel and Iran continued to keep investors on edge.
At 01:55 pm, ONGC shares were trading at ₹254.65 price level, 1.25% on the National Stock Exchange. Oil India shares pared some of their early gains and were trading at ₹481.95, up less than 1% in the session.
While higher oil prices are a big negative, considering India is a net importer of the commodity, domestic upstream oil producers benefit from the same owing to improved margin levels. Upstream oil companies are involved in drilling wells, exploration and production processes of the commodity. Any rise in oil price levels results in higher profit margins and improved realisations for these companies.
However, for oil marketing companies (OMCs) like HPCL and BPCL, the story is different.
In the last week, the Nifty oil and gas index has struggled to remain in the green territory, clocking a marginal decline of 0.03%.
Meanwhile, investors expect oil prices to remain elevated if tensions in the Middle East escalate further.
Oil Price Outlook
"Israel’s military strikes against Iran raise fears about a broader escalation in the region. Oil is the fever measure of such conflicts, and prices spiked accordingly. The situation remains in flux, and the coming days and weeks will show how far the escalation goes. Our best guess is that this latest conflict eruption follows the usual pattern, with prices rising temporarily before returning to previous levels," said Norbert Rücker, head of economics and next-generation research, Julius Baer, last week.
The brokerage firm has reiterated its 'Neutral' stance on the commodity.
"The oil market is very resilient today and supplies are unlikely at risk. Storage is ample, spare capacity plentiful, and exports grow outside of the Middle East. The situation remains and unpredictable for the time being and we thus lift our near-term target to $72.5," Rucker said.
