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The powerhouse of oil production, the OPEC+ alliance, remains dedicated in its mission to bolster Brent crude to $80 a barrel. Among Indian oil businesses, public sector entities Oil and Natural Gas Corporation (ONGC) and Oil India are best situated to profit.
The current growth in global oil supply, pegged at 1.8 million barrels per day (mmbpd) for calendar year (CY) 2024, is primarily driven by increased output from non-OPEC+ nations, such as the United States, Canada, Brazil, and Guyana, according to a recent report from domestic brokerage company JM Financials.
Yet, there is agreement that OPEC+ production reductions will keep the balance tipped towards a slight deficit in Q1 of CY24. Whether or not the year forms into one of surplus or deficit will rely on the future decisions on output cuts by OPEC+ for the rest of the year.
Market watchers are of the view that the OPEC+ conglomerate will use its considerable pricing power to keep Brent crude at a price of $75-80/bbl. There are several factors contributing to this thesis:
Despite the pandemic, U.S. oil production has remained steady at around 13 mbpd.
OPEC+ demonstrated its capacity to reduce output rapidly at the start of CY20, to counteract a 10% decrease in oil demand in the wake of the virus.
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Furthermore, OPEC+ retains quite a bit of flexibility, with the capacity to cut production by another 3-5mmbpd if needed to handle any economic risk affecting global oil demand.
ONGC and Oil India are ideally positioned in the event of a Brent crude price of $80/bbl. Even with the recent rally, a ‘buy’ position on ONGC (at a consistent target price of ₹300) and Oil India (Continued target price of ₹500) is advised by JM Financials, due to their strong dividend play (around 5-6%) and discounted crude realisation at about $65/bbl.
Oil markets on today’s date have seen prices stabilize following losses in the past session. This change is mainly due to increased expectations that reductions in US interest rates will not occur as soon as previously believed. However, apprehensions over attacks on Red Sea shipping are still causing some concern.
Regarding future trends, the complex oil market continues to exhibit substantial volatility, with occasional downturns due to rising apprehensions about demand and US oil supply. Still, China’s rate cuts for its five-year prime loan and profit-taking in the dollar index have offered a floor to decrease crude oil prices, analysts say.
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