Global petroleum prices are being affected by demand worries in the context of the weak US and Chinese economic statistics, forecasts for rising US crude production, and developments in the Iran nuclear talks. Since reaching a high of $121 per barrel in July, Brent has fallen below $100 per barrel.
Analysts predicted that despite potential volatility, Brent prices would likely remain below $100 per barrel due to weak demand and anticipated increases in supply.
Positively, lower crude prices are good for the Indian economy, which benefits markets. For upstream oil firms like ONGC and Oil India, it could not be good news.
Oil and gas realisations and production volumes determine how much money state-run oil firms make, but since the windfall tax, the excitement surrounding crude realisations has already subsided. Oil and Natural Gas Corp. Ltd. reports consistent domestic production volumes, while its subsidiaries experienced lower production in the June quarter, ascribed to Russian oil sanctions.
Analysts do, however, anticipate that the government will reduce windfall taxes to some extent, given the falling price of crude.
Analysts have reduced their estimates for earnings despite the impressive performance. According to analysts at Elara Securities (India) Pvt Ltd, “we cut FY23 and FY24 EPS forecasts by 28per cent and 11 per cent, respectively, on lower crude oil realisation at $74 and $75 a barrel from earlier projections of $95 and $90 per barrel given $30 a barrel windfall tax.”
On July 1, the government imposed a windfall tax on crude oil that was to be periodically reviewed and was set at 23,250 per tonne ($40 per barrel); it is presently at 17,750 per tonne ($30 per barrel).
ONGC’s profitability will, therefore, probably be limited. According to Prabhudas Lilladher analysts, ONGC would not profit from rising commodity prices because their crude oil realisation will be between $60 and $70 per barrel.