It’s been the first time since 2014 that oil prices crossed the $100/barrel mark and even touched 105 levels. All this is happening due to the Russia-Ukraine tussle. In the wake of India’s tightening fiscal situation, oil supplies are expected to draw even further as Russia, which accounts for 10% of the total crude oil sales to the world, is engaged in a war!
Who Will Benefit?
In the backdrop of these events, there lies an opportunity for government-owned domestic oil explorers. ONGC Limited and Oil India Limited cater to 15% of the total oil consumption.
Higher crude oil prices could significantly increase the net realisations for these companies. Every one-dollar increase in the net realisation for these companies increases their earnings per share (EPS) by 5%. For a context, ONGC and Oil India Limited had net realisations of $76 and $78 per barrel, respectively, for Q3 FY22.
What’s in Store for Investors?
What can be called icing on the cake for investors is that these stocks are currently trading at attractive valuations! Their stocks are trading below historical multiples and at a deep discount to their global peers. Another positive is the high dividend yield they are currently providing! ONGC and Oil India limited offer dividend yields of 4.5% and 4.1%, respectively, at their current market prices.
Investors betting on rising crude oil prices due to the current state of affairs worldwide can have a look at companies in this sector!