Why ONGC Share Price is Falling

The oil and gas sector in India has been flourishing, driven by increasing energy demands and a push for energy security.

With India being one of the largest consumers of oil globally, the government is encouraging exploration and production activities to reduce dependence on imports. This has led to strong investments in infrastructure, policy reforms, and technology advancements.

Following this optimism in the Indian oil and gas sector, OMC stocks have seen notable upward momentum. ONGC, one of India's largest OMCs, plays a crucial role in the exploration and production of oil and natural gas.

As a state-owned entity, ONGC has been instrumental in meeting India's growing energy needs while also diversifying into refining, petrochemicals and power generation. The company's extensive portfolio, along with its strategic importance, has made it a key player in India's energy landscape.

In the past year, ONGC rallied 61.3%. However, the stellar rally of ONGC has come to an abrupt halt.

ONGC's share price slipped 13% in the past month. Let's find out what reasons are dragging ONGC share price.

Falling Crude Oil Price

Crude oil prices have been on a steady decline, recently hitting their lowest point since December, effectively wiping out the year's gains.

This decline has been partly attributed to easing supply concerns in Libya, where a resolution to crude production disputes has been in sight.

The ongoing decline in crude oil prices is directly affecting ONGC's profitability. When crude prices fall, the prices of refined products, such as petrol and diesel, tend to drop as well, often at a quicker rate. These dynamics impact the profitability of ONGC.

There are growing concerns about a decrease in global oil demand, especially from non-OECD countries like China, which has seen a drop in consumption since early 2024.

Furthermore, OPEC's influence in managing global oil supply has weakened, with its share of production falling to 49% compared to nearly 60% in 2012.

This shift could prompt OPEC to prioritise market share over price stability, potentially pushing oil prices down further.

ONGC Videsh's Big Expansion Plans

Despite current challenges for ONGC's share price, the future looks promising for ONGC Videsh, its international arm.

ONGC Videsh is focusing on acquiring stakes in producing oil and gas assets rather than engaging in long-term exploration projects.

This strategy comes in response to the expected decline in demand for conventional fuels due to the global energy transition. With stakes in 32 oil and gas projects across 15 countries, ONGC Videsh is positioning itself strategically in the global market.

Anupam Agarwal, ONGC Videsh's head of finance, highlighted that the focus is on acquiring producing or near-producing assets rather than new exploration projects, except for those already in progress.

Global demand for refined fuels is projected to slow, especially with a decrease of 1.1% annually in China's oil consumption from 2023 to 2025. India is simultaneously increasing its use of liquefied natural gas and renewable energy.

Despite the impact of higher demand for services and equipment on capital expenditure plans, ONGC Videsh is committed to enhancing oil and gas output from existing and new fields.

India, is the third largest oil importer and consumer globally. It imports over 80% of its oil needs. This situation underscores the importance of ONGC Videsh's efforts to expand its international footprint and secure its future growth amidst evolving energy demands.

What Next?

ONGC is actively addressing the challenges posed by lower natural gas realisations and increased exploration costs.

To counter declining production from mature fields, ONGC is focusing on well intervention and new well drilling activities. This proactive approach aims to stabilise and increase production levels.

ONGC has commenced crude production from the KG 98/2 block and expects additional production from various new projects in the near future. These projects are in different stages of development and are anticipated to contribute positively to production and revenue.

The company is adapting its financial strategies to manage higher statutory levies and exploration costs. The goal is to mitigate their impact on profitability and improve financial performance in upcoming quarters.

ONGC is investing in technological advancements and operational efficiencies to enhance its overall production capabilities and cost management.

With these measures, ONGC aims to improve its financial metrics and production volumes, potentially leading to a positive shift in its share price as these strategies take effect.

How ONGC Share Price has Performed Recently

In the past five days, ONGC share price has tumbled 5.9%. In the last month, it has slipped 13.3%.

The stock price has rallied 44.1% in the 2024. Additionally, it has surged 61.3% in the last year.

The stock touched its 52-week high of Rs 344.6 on 1 August 2024 and a 52-week low of Rs 179.8 on 26 October 2023.

About ONGC

ONGC is the biggest publicly traded oil and gas production and exploration company in India.

The company produces 70% of India's crude oil. This is almost equivalent to 57% of the overall demand in the country. It also produces 84% of India's natural gas.

ONGC is under the ownership of the Ministry of Petroleum and Natural Gas, Government of India.

In 26 sedimentary basins in India, it is engaged in hydrocarbon exploration and prodduction. It owns and operates over 11,000 km of pipelines in the country.

To know more about ONGC, check out ONGC's financial factsheet and its latest quarterly results.

You can also compare ONGC with its peers:

ONGC vs Oil India

ONGC vs Hindustan Oil Exploration

ONGC vs Asian Energy Services

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