Oil exploration stocks dive sharply on sub-zero oil price

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

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RIL, ONGC, OIL India, Selan Exploration, HOEC tumbled 3-10%

Shares of oil exploration companies such as Reliance Industreis, 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 a historic minus $36/barrel.

Due to its own share of 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 nearly two-decade lows as less than 90 per cent of the world is under lockdown, with economies at a complete standstill.

The stock of Reliance Industries edged down about three per cent at ₹1,205.60; ONGC crashed 5.8 per cent at ₹69.75; Oil India tumbled 6.5 per cent at ₹84.70; Selan Exploration and Hindustan Oil Exploration slumped 5 and 10 per cent respectively.

Meanwhile, Sensex and Nifty slipped 2.65 per cent and 2.6 per cent at 30,779 and 9,022 respectively

Crude Oil prices currently hovering around $1.35 in NYMEX while Brent crude oil price, which India imports, stands steady at $25.35 a barrel.

Sugandha Sachdeva VP-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 in other 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 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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