The S&P BSE Oil & Gas Index traded over eight-and-a-half year high on Thursday and was the paramount performer among BSE sector indices as firm crude oil prices drove in a rally in shares of oil marketing companies.
Crude oil prices went up on Thursday, with US crude exceeding the $50 per barrel score for the first time since late June due to fall in US inventory levels. Last week, the Organization of the Petroleum Exporting Countries i.e. OPEC reached an understanding to slash production to reduce the supply surplus.
The S&P Oil & Gas Index hit a high of 12326.75 intraday, the peak level since January 21, 2008, before ending the trading session at 12160.14, up 2.6% from the earlier close. This year so far, the BSE Oil & Gas Index has gained 27.2%. In comparison, the S&P BSE Sensex has gained 7.6%.
Indian Oil, Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation ended up 3.7-5.4% up after hitting fresh record highs intraday. Petronet LNG ended up 1% after scaling an all-time high. GAIL, up 3.5%, was the top gainer on the Sensex, as low gas prices are expected to benefit the company in terms of increase in transmission volumes.
ONGC is gaining due to the increase in crude oil prices and gas companies like GAIL are rallying because they will get marginal benefit from fall in gas prices.
Analysts are specifically betting on oil marketing companies in the sector as valuations remain cheap regardless of the sharp run-up in their stock prices.
IOC is also one of the main contenders for inclusion in the Nifty index going ahead. Analysts are also betting on Reliance Industries as some of its large-scale projects are expected to begin operations in near future. Reliance’s refining capacity is expanding and it is not reflecting in the price.
While BSE Oil and Gas Index surged on Thursday, Nifty Energy was busy rising as much as 3%, it’s highest in more than two years. The index closed at the note of 1.6% increase than its previous close.
Nifty Energy was one among the two indices that closed on a positive note on the NSE yesterday, other being Nifty Metal that closed 0.18% up.
IOC share price closed 5.3% higher on Thursday compared to its last close price. Hindustan Petroleum closed 3.78% up while Power Grid and NTPC closed on the sour note.
The Crude Oil Comeback:
West Texas Intermediate crude oil went above $50 per barrel for the first time since June 24. The slight upward trend came after a series of good news that may assist in rebalancing the supply-demand dynamics of the commodity.
Last week, the oil cartel OPEC preliminary decided to a cap on production of oil. On Wednesday, the Energy Information Association announced that reserves of oil in the US had surprisingly decreased by 3 million barrels.
Over the past year and a half, oil has been relentless by an oversupply that has caused the price of a barrel to break down to its lowest level in over a decade. Based on recent news, it looks like some of that over-supply may finally be working its way through the system.
Click here to read the full report