OPEC supply restraint, hardening oil prices see oil companies' shares flying

Shares of oil companies were flying on the bourses on Tuesday, following further strengthening of global crude oil prices on Monday with oil cartel OPEC+ deciding to continue with their gradual approach to raise production.

At around 11.20 a.m., shares of the Oil and Natural Gas Corporation (ONGC) jumped 7.22 per cent to Rs 158.25 on the BSE while that of Oil India Ltd (OIL) gained 1.92 per cent to reach Rs 246.30.

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Indian Oil Corporation shares were up 2.89 per cent to Rs 129.90 while privatisation- bound Bharat Petroleum Corporation shares also witnessed a jump rising 1.09 per cent to Rs 440.45. Hindustan Petroleum Corporation also saw its shares rising 1.77 per cent to Rs 307.90.

The improved performance of oil sector stocks is largely on account of good prospect being seen for the oil market. Gain and further firming of crude prices to cross $80 a barrel mark spells good news for producers such as ONGC and OIL as their realisation from sale of oil would improve. For fuel retailers and refiners, higher product prices mean higher marketing margins.

Oil prices have firmed up in last few days rising above $80 a barrel, a multi-year high level. The prices have firmed up as Organisation of the Petroleum Exporting Countries (OPEC) and allied major oil producers have decided to maintain restraint on supply.

The OPEC and its allies including Russia, collectively known as OPEC+, on Monday decided it raise oil production only gradually by upto 400,000 barrels a day even in November. This is against the wishes of prime oil consumers such as the US, China and India that OPEC boost production at faster pace to keep up with rising demand and maintain the price line within reasonable limits.

Oil prices have have surged more than 50 percent this year and has more than doubled in last one year. For oil consumers, rising oil prices means added to inflationary pressures on the economy and slowdown in recovery from the pandemic.