ONGC share price declines by over 2% following significant drop in crude oil prices

The share market investment landscape has seen a notable shift as Oil and Natural Gas Corporation Ltd (ONGC) faces a significant drop in its share price. ONGC's shares have recently fallen over 2% in early trade, plummeting to ₹287.70 apiece on the Bombay Stock Exchange (BSE). This decline comes in the wake of a dramatic fall in crude oil prices, which has raised concerns about the company's future earnings.

Impact of crude oil price drop

Crude oil prices have tumbled to their lowest levels in three years, primarily due to a revised forecast from the Organisation of the Petroleum Exporting Countries (OPEC). OPEC has cut its projection for global oil demand growth in 2024 to 2.03 million barrels per day, down from the previous estimate of 2.11 million bpd. This downward revision has resulted in Brent crude oil prices slipping below the $70 per barrel mark for the first time since December 2021. The drop in crude prices is poised to impact ONGC's earnings negatively, as analysts predict a potential free fall in the company's financial performance.

ONGC's recent performance

Despite the current bearish trend, ONGC's share price has demonstrated resilience over the past year. The stock has gained 41% year-to-date (YTD) and delivered a remarkable return of over 58% in the past 12 months. However, recent trends paint a different picture. The company's shares have declined more than 7% in the past week and over 12% in the past month. This recent dip highlights the vulnerability of ONGC to fluctuations in crude oil prices, which directly affect its revenue and profitability.

Analysts' outlook

Analysts from Nuvama Institutional Equities have expressed concerns about ONGC's earnings prospects. They anticipate a 'double-barrelled free fall' for the company, noting that ONGC has consistently missed its volume growth targets over the past six years. The analysis also points out that ONGC's production guidance has been substantially lowered, with the peak production targets for the KG-98/2 block reduced by 42% for oil and 33% for gas since FY18. The current market conditions and the significant drop in crude oil prices are expected to exacerbate these challenges.

Technical analysis

From a technical perspective, ONGC's share price has recently experienced a pullback from higher levels, trading around ₹289. Analysts suggest that the stock is nearing a support zone, which could present a favourable buying opportunity if signs of a reversal emerge. The Relative Strength Index (RSI) is currently around 30, indicating that the stock is approaching the oversold region, suggesting that selling pressure may be easing. Key resistance levels are identified between ₹300 and ₹310, and a breakout beyond this range could lead to higher levels.

Key takeaways

1. Crude oil prices: The sharp drop in crude oil prices has resulted in a significant decline in ONGC's share price, highlighting the sensitivity of the stock to oil market fluctuations.
2. Recent performance: ONGC has faced a bearish trend recently, with over a 7% drop in the past week and more than 12% in the past month, despite a strong performance over the past year.
3. Analysts' concerns: Analysts predict a potential decline in ONGC's earnings due to missed production targets and lower production guidance.
4. Technical outlook: The stock is approaching a key support level, with the RSI indicating it is nearing the oversold region. Investors should monitor key resistance levels and consider risk management strategies.

As investors navigate the current market conditions, ONGC's stock presents both challenges and opportunities. Keeping track of crude oil price movements and technical indicators will be crucial for making informed share market investment decisions.