The decision of Organization of the Petroleum Exporting Countries (OPEC) to keep oil production in check has surprised many. Looking at the tight global demand-supply of crude oil that has led to steep rise in global oil prices, expectations had been building of OPEC easing on production cuts.
Oil prices have been rising ever since supplies in the US got impacted due to cold wave conditions. With temperatures holding below sub-zero levels for the longest stretch in the last 11 years, the disruption in US oil production has already been immense, say analysts.
The disruption in crude oil production has been to the tune of about 4 million barrels of oil per day (bopd) that led to refinery outages (of 2.6 million bopd), suggests Motilal Oswal Financial Services Ltd (MOFL) data. Brent prices thereby had already averaged higher at $62.4 per barrel in February, up $8/barrel over January.
With the news of OPEC continuing to extend production cuts till March 2021 to April 2021, oil prices may strengthen further. Analysts say “Saudi Arabia would continue its voluntary cuts of 1mnbopd (total cuts: about 2.9mnbopd), while Russia and Kazakhstan would be allowed to ease cuts slightly. Overall, the total OPEC+ production cuts still stand at 8mnbopd compared to pre-COVID levels,” suggests MOFL data. Analysts expect oil prices coming under check with rising production from OPEC plus, but for now prices may stay firm.
Firm crude prices bode well for Indian upstream companies such as ONGC Ltd and Oil India Ltd. The companies may see their net oil realisations improve, lifting their earnings outlook. Oil India had already seen crude realisation improve to $42.8 a barrel in Q3FY21, up 3 % sequentially. ONGC had seen crude oil realisation of 44.2/barrel, up 2.5 % sequentially.
With crude oil prices consistently staying above $50 a barrel levels and even crossing $60 a barrel levels recently, the companies are bound to report better Q4 performance.