Higher crude oil prices positive for upstream players

Brent crude oil prices have spiked 7 percent (to $74 per barrel) after the war began between Israel and Iran.

- DEVANGSHU DATTA

Iran's oil production is 3.5 million barrels per day (mbpd) with around 2.5 mbpd of exports. And, China is the buyer of over 80 percent of this.

The Israeli assault targeted Iranian infrastructure. There is also some chance of disruption of shipping via the Straits of Hormuz, which is a choke point for 20 percent of global oil and gas traffic. It includes exports from Saudi Arabia, Iraq, Iran, UAE, Kuwait, and Qatar. Even if Iranian production is curtailed, the OPEC+ decision to ramp up production implies that other supply would compensate.

A blockade of the Strait of Hormuz is a low probability, but it would create a huge issue if it occurs. Even without that, crude and gas prices will be somewhat elevated on the threat of supply disruptions.

ONGC and Oil India (OIL) are key beneficiaries of high crude price. Their current valuations discount realisations of $65 per barrel. Every dollar per barrel of higher oil prices boosts earnings by 1.5-2 percent. ONGC and OIL are pushing production up by 15 percent and 25 percent, respectively, in the next two-three years.