Energy stocks on slippery turf

Last Updated: Fri, Jun 29, 2018 15:24 hrs
Petrol Pump (PTI image)

With crude oil prices trending higher amid supply concerns and the U.S. government's directive to all countries to stop buying Iranian crude from November 2018, the near term outlook for most of the stocks in the energy space looks somewhat uncertain.

Reliance Industries, which is into other businesses apart from refinery, is the only stock from Nifty Energy index to have made notable progress in the current calendar month. The stock has gained about 6% this month. One big reason for the stock's rise is the buying interest the counter manages to generate following the launch of Reliance Jio data packages by Reliance Infocomm, the company's subsidy.

Shares of state-run oil marketing companies Hindustan Petroleum Corporation, BPCL and Indian Oil Corporation have declined sharply. Hindustan Petroleum Corporation has lost as much as 18% this month. Indian Oil Corporation and BPCL have shed 10% and 9.7%, respectively.

ONGC has declined 9.7% and GAIL India has lost 2%. The other stocks in the Nifty Energy index, Tata Power (down 12.4%), Power Grid Corporation (down 9.8%), Reliance Infrastructure (down 8.1%) and NTPC (down 5.1%) have also lost significant ground this month.

Among other energy stocks that are not part of the Nifty Energy index,  Indraprastha Gas and Oil India have both lost about 4% each this month, while Petronet LNG and Castrol have declined marginally.

Crude oil prices climbed higher since the beginning of this year, due largely to tight market conditions and supply cuts resorted to by OPEC. Though prices are drifting down a bit today, the U.S. move, asking all countries to stop importing Iranian oil may well disturb the trade pattern of some countries. India, for example, import a significant portion of its crude requirements from Iran.

Higher output from OPEC and larger imports from U.S. could give some advantage to India, but it remains to be seen to what extent the benefits will help cut down the country's widening trade deficit.