Result preview – Oil & Gas – Higher prices (upstream) and CNG & PNG volume growth (CGD) to drive sales in Q1FY19

Crude oil was volatile in the quarter and ended on a higher note (Brent up ~11%). OPEC continued with its production cut until its meeting in June, where it decided to increase production by 1mbpd. Although prices were rising on the back of declining Venezuelan production and risks of Iran sanctions, it was balanced by the growth in US crude production to some extent. This rise in prices of crude oil is expected to improve realizations of upstream companies like ONGC and Oil India. However, this benefit is expected to be partially offset by Kerosene and LPG subsidy sharing. We expect oil marketing companies’ performance to be weak on a qoq basis compared to the decline in Singaporean benchmark GRM and due to the expected decline in marketing margin. Singapore GRMs declined by ~13% qoq to $6.1/bbl against $7/bbl in Q4FY18. In Q1FY19, we believe petrol and diesel prices have not been hiked in line with the rising crude prices. This would keep the marketing margin of these companies under pressure.

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