Oil & Gas shares rally; ONGC, Gail surge up to 7%, hit 52-week highs

Shares of oil & gas companies were in focus on Monday after Brent crude prices hit their highest level since January, 2020. Besides, amid improved outlook and expectation of higher crude oil prices going forward, Oil and Natural Gas Corporation (ONGC) and Gail (India) surged up to 7 per cent and hit their respective 52-week highs on the BSE in the intra-day trade.

The oil prices were at their highest levels in more than a year after Yemen's Houthi forces fired drones and missiles at the heart of Saudi Arabia's oil industry on Sunday, raising concerns about production. Brent climbed $1.09 a barrel to $70.45, while US crude rose $1.08 to $67.17 per barrel. The crude oil price also jumped on optimism about the demand outlook as the global economy recovers.

"The recent rebound in crude oil prices has been driven by gradual recovery in global economy and thereby, improving demand for crude oil even as it remains below pre-Covid levels," analysts at Kotak Securities said in sector report.

A stringent compliance to the targeted curtailment in production by OPEC+ cartel— OPEC countries has been more than fully compliant in recent months as select nations compensated for the earlier under-compliance.

Moreover, compliance by non-OPEC countries has also remained just under 100 per cent, while temporary reduction in US oil production by around 1 mn b/d in the recent weeks due to the deep freeze conditions, and general optimism on world economic environment post encouraging progress on vaccination programs are contributing towards gains in oil prices, the brokerage firm said.

Among the individual stocks, Gail (India) surged 7 per cent to Rs 157.95 in the intra-day trade on the back of heavy volumes. Analysts prefer Gail as a hedge against higher crude prices as the company benefits from an increase in profitability of LPG production and LNG marketing segments.

That apart, shares of ONGC rallied 6 per cent to Rs 122.30, while Oil India gained 5 per cent to Rs 133.50 on the BSE. According to a CNBC TV18 report, foreign brokerage firm JP Morgan maintains 'overweight' rating on ONGC with target price of Rs 190 per share. The brokerage firm builds in $60/bbl Brent price v/s $50/bbl earlier. EPS estimates raised by 46 per cent/32 per cent for FY22/23.