In the last quarter of 2019-20, the global crude oil prices declined significantly to about $30 per barrel from a closing price of $66.4 per barrel in the third quarter. The reasons for decline in prices can be well attributed to the sharp fall in oil demand due to outbreak of Covid-19 coupled with a disagreement between Organization of the Petroleum Exporting Countries and Russia regarding a reduction in oil output. According to ICICI direct research, the decline in crude oil prices by about 60 per cent is expected to impact upstream companies’ realisations and profits drastically. Besides, it expects the oil marketing companies (OMCs) to face huge inventory losses. However, reduction in price could also result in higher marketing margins, providing respite to OMCs. In the first fortnight of March 2020, the product sales of OMCs reduced by about 10 per cent year-over-year, owing to lowered demand amid the Covid-19 spread. The fall in demand has a direct impact the compressed natural gas (CNG) sales volume of city gas distribution (CGD) companies. On the piped natural gas (PNG) front, the lockdown has impacted the industrial and commercial sales due to closure of industries. As per the estimates by ICICI direct research, CNG and PNG sales are expected to decline 25-30 per cent in the first quarter of 2020-21, as the lockdown continued in the month of April.
The outbreak of Covid-19 and subsequent lockdown has largely impacted the earnings of players in the CGD sector, resulting in decline in their stock prices. ICICI Direct research assesses the impact and assigns ratings to the stocks of CGD companies and selective OMCs, including Adani Gas Limited, Indraprastha Gas Limited, Indian Oil Corporation Limited, Oil and Natural Gas Corporation Limited, Petronet LNG Limited, Mangalore Refinery and Petrochemicals Limited and Hindustan Petroleum Corporation Limited, amongst others.