OIL AND GAS OUTLOOK

Currently, the crude oil is trading near US$ 80 per barrel. Going forward, we expect it to go further up to US$ 85 per barrel on the back of higher energy demand on global recovery. This would result in higher realizations to upstream companies like RIL, ONGC, Cairn India. But at the same time, higher crude prices would impact the profitability of downstream companies (Oil Marketing Companies) as retail oil prices are Govt. driven and OMCs cannot pass on the higher cost to the end users. It would also lead under recoveries.

Currently, the natural gas is trading below its average rate of US$ 5.5 per mmbtu. In the economic recovery, it would be preferred as cheap energy alternative. As there is huge inventory buildup in natural gas, we expect the upside is limited to US$ 6.5-7 per mmbtu. Given that the vast demand-supply gap in natural gas, gas transmission companies would be highly benefited.

Another factor that can impact oil and gas industry is ?movement in Rupee?. We expect rupee is strong in the near term, on account of higher economic activities and FII inflows to India. This would be a positive factor for OMCs like IOC, BPCL, HPCL etc. as it will reduce the oil procurement costs, thus reducing subsidy losses and it would also be good for Gujarat Gas as its procurement is dollar denominated and the selling price is rupee-based.

Whereas, rupee appreciation could be negative for stand-alone refineries like Chennai Petroleum as their GRMs are dollar denominated and for upstream companies – ONGC and OIL as crude realisation is US$ denominated but some negative impact is mitigated due to lower subsidies.

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Posted by kamal on October 30th, 2009 | Filed in Crude Oil, Economy, Oil & Gas | Comment now »

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