Mumbai: Indian crude oil exploring and producing companies Oil and Natural Gas Corp Ltd. (ONGC), Oil India Ltd (Oil India) and Cairn India Ltd (Cairn India) are bracing up for a tough time ahead as a successful Iran deal means further downward pressure on crude prices globally.
Iran and world powers sealed a historic accord to curb the Islamic Republic’s nuclear programme in return for the lifting of sanctions, Bloomberg reported on Tuesday. This essentially means that Iran, which was once among the top five crude oil exporters of the world, can resume its exports of crude oil, thereby flooding the over-supplied world market with more crude.
“We expect up to a million barrels of crude oil to come to the market per day," said an analyst with a domestic brokerage. This would mean further pressure on the revenues and profits of the companies that are producing crude oil in India.
Brent oil fell 1.7% to $56.86 a barrel in early trading in London on Tuesday, according to the Bloomberg report.
The analyst said the biggest impact will be felt by Cairn India, which saw its net profit fall by almost 82% in the last financial year as compared with the year-ago period due to almost 48% drop in crude prices.
“There will even be substantial impact on the revenues and profitability of ONGC and Oil India, but their share prices will not fall further as most of the impact of a low crude price has been factored in," said the analyst cited above.
Even if the crude price stabilizes at $55 or a little below that level, it will still be higher than the net realizations by ONGC and Oil India in 2014-15. During the period, ONGC saw a net realization on sale of crude oil to oil marketing companies at $47 per barrel.
Owing to fall in crude prices, ONGC has seen a steady fall in its share prices since July last year from ₹ 411.98 per share as on 30 June to ₹ 290.65 per share as on 1:30pm on Tuesday.
ONGC was trading at ₹ 290.65 a piece, while Cairn India was trading at ₹ 170.70 a piece on Tuesday.
Here’s how Iran can impact Indian companies: if Iran starts pumping and exporting a million barrels of crude oil per day, it would be equivalent to almost one-fourth of India’s daily consumption. This is huge in terms of incremental volumes as India itself is the world’s fourth biggest crude oil consumer.
The impact on crude prices is expected to come sooner than later as Iran has been beefing up its crude export ability for months now.
According to a Reuters report released in April that cited data from maritime intelligence publisher IHS Fairplay, an estimated 10 Iran supertankers, each able to carry up to 2 million barrels of crude, were storing oil, together with one smaller tanker able to carry up to 1 million barrels. The data showed two more supertankers were probably deployed on floating storage, based on the length of time they were stationary. This means it has been storing as much as 25 million barrels in total.
However, the analyst cited earlier said low crude prices usher in good news for oil marketing companies Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd as the cost of their main raw material crude oil goes down.