Stock Picks: Oil and Natural Gas Corporation (ONGC) share price has zoomed 94% in a year and Oil India Ltd offered multi-bagger returns to the investors, cheering investors and analysts.
Analyst confidence in the earnings growth of these upstream oil and gas producers remains strong as Brent Crude prices, which had dipped below $80 a dollar in the first half of June for a short period, have sustained above $80 a barrel thereafter. This has also boosted investor sentiments.
Brent is likely to sustain above $80 a barrel, analysts feel. The demand-supply dynamics are expected to support the Brent crude prices and that may also be positive for investor sentiment towards Oil India and ONGC share prices.
Brent crude's price rise closed in on $85 a barrel in the last couple of weeks as the Organization of the Petroleum Exporting Countries (OPEC) and its allies continued with voluntary cuts. The OPEC has not given any indications towards easing the voluntary cuts. Further, the geopolitical uncertainty in the Middle East is also supporting the upside of Brent.
On the demand side, while China remains soft, the International Energy Agency or IEA has maintained its global demand growth forecast, analysts said.
Analyst at JM Financial say that IEA expects global oil supply growth for Calendar Year 2024 to be limited at only 0.8mmbpd (million barrels per day) due to OPEC+ output cuts, implying a deficit of ~0.2mmbpd. They believe the strong pricing power of OPEC+ will continue to support Brent at ~USD 80/bbl, which is the fiscal break-even crude price for Saudi Arabia. JM Financial analysts see this as a sweet spot for ONGC and Oil India. The current stock prices of ONGC and Oil India reflect an assumption that these companies will be making money by selling oil at around $70 a barrel.
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Additionally, a strong 4-6% dividend yield and a firm production growth outlook over the next 1-3 years are positives. JM Financial has given Buy ratings for ONGC and Oil India. Oil India is also likely to benefit from Numaligarh Refinery capacity expansions.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
