Oil prices dent equity prices, drag bellwether indices

Mumbai, Dec 8 (IANS) Stocks of oil explorers and petroleum products marketing firms extended their last week’s fall on Tuesday, as global black gold prices tumbled to a seven-year low.

The slump in stock prices comes after the Organization of the Petroleum Exporting Countries (OPEC) in its meeting last Friday in Vienna decided to maintain the supply status quo, rejecting calls to reduce output, so as to arrest the price decline.

Ironically, it was being speculated that Saudi Arabia, a key member of OPEC, was ready to support a deal to balance oil prices with non-OPEC members, to choke competition from the American shale gas industry.

The latest data which comes with a 24-hour lag time showed that the Indian basket, comprising 73 percent of sour-grade Dubai and Oman crude, and the balance in sweet-grade Brent, plunged to $38.61 a barrel on Monday. A barrel equals 159 litres.

In November, global price went below the $40-mark for the first time in 11 years.

The November drop below $40, after having been in the $43-47 range earlier, was attributed to uncertainties created by the terror attacks in France last month.

Oil prices have fallen by more than 50 percent in a little over a year from levels of well over $120 a barrel, provoked by the slowdown in China and other emerging market economies and the end of sanctions against Iran.

The cascading impact of receding oil prices eroded stock value of oil and gas companies and dragged the bellwether indices of the Indian equity markets to end lower on Tuesday.

The barometer 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE) shed 219.78 points or 0.86 percent and stood at 25,310.33 points during the day’s trade.

Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) closed in the red. It was lower by 63.70 points or 0.82 percent at 7,701.70 points.

The S&P BSE oil and gas index plunged by 198.38 points or 2.14 percent at 9,062.34 points, followed by S&P BSE energy index which receded by 44.89 points or 1.80 percent at 2,445.59 points and S&P BSE power index that declined by 33.60 points or 1.80 percent at 1,831.38 points.

Stocks of major Sensex companies in the oil and gas sector fell. Scrip of Gail was down 5.05 percent at Rs.339.50; ONGC, down 3.57 percent at Rs.216.10, and Reliance Industries, down 1.18 percent at Rs.942.45.

Besides Sensex companies, other major stocks of oil and gas firms too dwindled: Cairn, down 5.57 percent at Rs.128.10; Oil India, down 3.38 percent at Rs.374; Indian Oil, down 1.54 percent at Rs.422.10; Castrol India, down 1.51 percent at Rs.432.90; Hindustan Petroleum down 0.86 percent at Rs.831.70; and Bharat Petroleum, down 0.07 percent at Rs.909.55.

“The slump in oil prices negatively impacted stock prices of oil and gas companies which dragged the markets lower and thinned investor participation,” Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.

According to James, the oil explorers require firm global oil prices to make their investments sustainable.

“The oil marketing companies are suffering due to the economic slowdown and delays in infrastructure projects. These factors are not allowing the consumers to lap-up cheap oil products,” James added.

Vaibhav Agrawal, vice president, research, Angel Broking, told IANS: “Oil prices declined significantly after OPEC decided not to cut production.”

“While this is largely positive for our economy, we expect upstream oil and gas stocks to be major losers. We believe the fall in oil prices is negative for stock such as ONGC, OIL, Cairn and Gail.”

Other analysts said that OPEC’s decision is good news, not just for the economy and equity markets but also for the Indian rupee. A drop in oil prices accompanied by subsequent reduction in petroleum product cost will help drive consumption growth, lower inflation and prompt the Reserve Bank of India (RBI) to maintain its interest rate reduction cycle.

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