Oil exploration stocks dive sharply on sub-zero crude price

Our Bureau Chennai | Updated on April 21, 2020 Published on April 21, 2020

RIL stages sharp recovery; ONGC, OIL, Selan Exploration, HOEC tumble 3-10%;

Shares of oil exploration companies such as Reliance Industries, ONGC, Selan Exploration, Hindustan Oil Exploration and Oil India plunged in the range of 3-10 per cent in early trade on Tuesday, as NYMEX crude oil prices plunged to a historic minus $36/barrel.

However, Reliance made a sharp recovery from a low of ₹1,164.45 to a high of ₹1,252.55 on the BSE but closed slightly lower at ₹1,236.05 against the previous day’s close of ₹1,244.45. Due to issues regarding storage and lack of demand, WTI May futures crashed to a low of negative $36.9/bbl on Monday night before recovering to negative $1.6/bbl. Global crude oil benchmarks are at near-two-decade lows following about 90 per cent of the world being under lockdown and economies at a near standstill.

Intra-day, ONGC crashed 6.5 per cent at ₹69.25, Oil India tumbled 5 per cent at ₹86.10, Selan Exploration slumped 5 per cent and Hindustan Oil Exploration fell 10 per cent. Besides RIL, ONGC and Oil India too recovered from the day’s lows.

Meanwhile, Sensex and Nifty slipped 3.2 per cent and 3 per cent at 30,636.71 and 8,981.45, respectively.

Crude oil prices are currently hovering around negative $6.9 on the NYMEX, while Brent crude oil, which India imports, stands steady at $21.47 a barrel.

‘Grim situation’

Sugandha Sachdeva, Vice-President – Metals, Energy & Currency Research, Religare Broking Ltd, said, “It’s a grim situation, playing out in the oil markets grabbing eyeballs of the entire investor fraternity and defying logic. The absolute collapse of WTI prices is primarily owing to the expiry of May WTI contracts, alongside the significant demand destruction due to lockdown in several countries and supply glut in oil markets. Put simply words, the sellers are paying the buyers. Oil traders are unwilling to take the delivery owing to lack of storage space.”

In complete contrast, Brent crude prices are trading at about $25/bbl. The reason for this sharp divergence is that WTI needs to be physically delivered at Cushing, Oklahoma whereas for Brent contract, deliveries can be done offshore at multiple locations.

Though the share prices of Indian oil exploration companies crashed in panic reaction to the fall of WTI crude, most will stabilise sooner or later, once the dust settles, a market analyst from Chennai said.

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Published on April 21, 2020
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