India's substantial crude oil and natural gas company is ONGC. Its stock price and financial performance have been subject to global crude oil prices since it is the leading hybrid player in upstream exploration and production.
Read on to examine ONGC's recent share price movement. The article will use the latest news developments and technical indicators to explore the fundamental and technical factors causing the ONGC share price to fall or rise.
Understanding ONGC's Business
Before analysing the share price drivers, it is essential to understand ONGC's business model. ONGC is vertically integrated across exploration, drilling, production, refining, petrochemicals, and pipeline transportation of hydrocarbons.
With domestic and international assets, ONGC contributes around 70% of India's indigenous oil and gas production. For FY 2022, the company reported total consolidated revenue from operations of ₹1,10,033 crore.
Key Factors Influencing ONGC Share Price
Several macro and company-specific factors influence ONGC's share market price today.
- Global Crude Prices: As a leading exploration company, ONGC's earnings are directly impacted by international oil and gas prices, which determine the realisation of hydrocarbon sales.
- Production Volumes: ONGC's output volumes, mainly from mature fields, influence profitability and future production sustainability.
- Earnings: Financial performance, including revenue, profits, cash flows, and dividends, impacts investor sentiment and valuations.
- Capex Plans: Growth visibility through investments in new projects is critical to long-term value creation. Any cuts in capital budgets due to low oil prices lead to uncertainty.
- Partnerships: ONGC regularly partners with global energy players to leverage technical expertise and co-own mega development projects. The success of these partnerships also determines investor confidence.
- Government Policies: As a PSU entity with significant government ownership, ONGC's strategic decisions and financial position are also impacted by policies on regulation, subsidies, and energy security.
Recent Share Price Movement and Driving Factors
2022 ONGC's stock price witnessed significant volatility - falling over 14% from ₹195 in January 2022 to ₹167 by the end of June 2022. What factors drove this decline over the last six months?
The Russia-Ukraine conflict triggered a spike in global crude prices - with Brent crude rallying from $75 per barrel in early 2022 to over $120 by June 2022. Despite the sharp rise in oil realisations, ONGC's stock failed to benefit.
Despite the oil boom, ONGC's muted stock performance was primarily driven by concerns over falling domestic production from mature fields and lower-than-expected refining margins.
The company's crude oil production from domestic fields dropped 5% in FY22, while natural gas output fell almost 8%. Declining production from ageing fields like Mumbai High resulted in lower profits from core exploration activities.
While soaring crude prices improved oil and gas sales revenue, ONGC's bottom line failed to see material gains as the international oil price rally escalated the subsidy-sharing burden for upstream producers.
Additionally, ONGC's refining, petchem, and marketing operations witnessed margin pressures due to declining demand growth and high energy costs.
Overall, fears over falling output from legacy fields and margin pressures across business verticals led investors to turn cautious - resulting in the stock correcting despite the oil price rally.
Technical Analysis and Indicators
Along with fundamental drivers, ONGC's share price movement over the past few months has been along expected technical levels. Let us analyse some vital technical indicators to understand the ongoing price action better:
1. Trend Analysis
ONGC stock has been trading in a clear downtrend since October 2021, with highs of ₹174. The share price made a series of 'lower highs' and 'lower lows,' reflecting sustained downward momentum.
So far in 2022, the stock has found resistance around ₹190 levels multiple times. The moving averages depict bearish signals, with the 20-, 50-, 100-, and 200-day averages sloping downwards. This highlights the stock's stay in a technical downtrend.
2. Moving Averages
The stock trades below the 5-, 10-, 20-, 50-, 100-, and 200-day moving averages. The pricing trending below crucial moving averages shows a bearish solid sentiment. Sustained trade below the 200-day average at ₹158 signals long-term weakness.
3. MACD (Moving Average Convergence Divergence)
The MACD line recently crossed below the signal line and turned negative, underscoring downside momentum. The negative crossover after a period of convergence reaffirms the bearish signal.
4. ADX (Average Directional Index)
The ADX is currently around 27, suggesting a robust ongoing trend. While lower than previous highs, the ADX well above 20 reflects the robustness of the current downtrend phase. This signals chances of continuation of the prevailing bearish trend.
In summary, technical indicators for ONGC stock reflect sustained downward price momentum driven by long-term moving averages in a bearish setup, a negative MACD crossover, and a strong ADX trend score.
Latest News and Developments
In recent corporate updates, ONGC announced the appointment of a new CFO, Mr. Devendra Kumar, effective June 20, 2024.
On June 17, 2024, the company signed a Memorandum of Understanding with Indian Oil Corporation to set up an LNG plant in Madhya Pradesh. This strategic move aims to monetise ONGC's gas assets in the state and produce LNG for clean transportation fuel.
In June 2024, after investing seven years and $1.2 billion in the Deen Dayal West gas field with no success, ONGC invited partners to help revive the KG basin block.
While the stock has corrected sharply over the last year, institutional brokerage houses like Motilal Oswal are optimistic about ONGC's long-term growth story and view the ongoing weakness as a value-buying opportunity.
Conclusion
How Global Oil Prices Impact ONGC Share Price and the Share Market Today? While ONGC financials are directly linked to movement in global oil prices, counterintuitively, the stock has declined over 20% in 2022 despite the oil boom. Concerns over falling domestic production, high subsidy burden, and margin pressures have dented investor sentiment. Technically, too, the stock is in a clear downtrend.
However, recent analyst upgrades and partnership announcements could help revive ONGC's growth narrative and reverse the ongoing slide. Oil market dynamics, domestic gas pricing reforms, and production trends from mature fields will remain key monitorable for ONGC's business profitability and share price trajectory.
CAclubindia
