Why are oil stocks ONGC, GAIL, HPCL, RIL under stress today?

Oil and gas stocks were reeling under selling pressure on Tuesday after international crude oil slipped to a two-week low overnight as ceasefire talks between Russia and Ukraine eased supply concerns. While falling oil is good news for India, a net importer of crude, it is likely to impact the earnings of some oil companies.

Shares of state-owned crude oil refiners such as Oil and Natural Gas Corporation (ONGC), Bharat Petroleum Corporation Limited (BPCL) and Oil India fell up to 3%, while private player Reliance Industries (RIL) dropped nearly 1% in opening trade.

At 10 a.m., the BSE oil and gas index was down 1.1% at 17,753, while the BSE benchmark Sensex traded a tad higher at 56,497 points.

In the oil and gas space, ONGC was the biggest loser by falling as much as 4.25% to hit a low of ₹164.5 on the BSE. GAIL India dropped 2.3%, followed by Indraprastha Gas (1.4%), Petronet LNG (1.02%), BPCL (1%), Indian Oil (0.5%), among others.

Index heavyweight Reliance Industries dropped 0.9% to touch a low of ₹2,396.85 on the BSE. The stock of the country’s most valued firm has fallen after rising nearly 6% in the past four sessions.

The price of Brent crude, the global benchmark, continued to slide on Monday as sentiments were boosted by positive comments from peace talks between Russia and Ukraine. The fresh Covid-19 wave in China and subsequent lockdown in some regions also dented the demand outlook.

In the overnight trade, Brent futures tumbled 5.1% to settle at $106.90 a barrel, while US West Texas Intermediate (WTI) dropped 5.8% to $103.01.

During Asian trading hours on Tuesday, the U.S. WTI crude futures for April contracts declined 4.6% to $98.25 a barrel, while the Brent oil futures for May contracts dived 4.7% to $101.9 per barrel.

“Crude oil prices slipped on Monday as diplomatic efforts between Moscow and Ukraine indicated both nations may end the conflict, boosting global supplies. Further, oil prices plunged as a pandemic-linked travel ban in China impacted the demand outlook. China imposed a lockdown in manufacturing hubs Shenzhen and Changchun due to a surge in Covid-19 cases,” ICICI Securities said in a report.

The report further stated that the United Kingdom Prime Minister Boris Johnson was trying to persuade Saudi Arabia to increase its oil output while the International Energy Agency (IEA) chief urged oil-producing countries to pump more oil to boost global supplies.

The Brent crude price had hit a 14-year high of nearly $140 a barrel earlier this month after the U.S. and its western allies imposed a flurry of sanctions on Russia following its invasion of Ukraine. The U.S. had levied sanctions on Russian oil export, one of the key oil producers, which impacted the global oil supply.