Oil and Gas share price target

The latest Energy Information Administration (EIA) report on crude and product inventories shows that the bullish trend of crude prices may potentially march on. Crude and gasoline inventory declines over the past few weeks have managed to skirt estimates, even with distillate inventories staying healthy.

News reports indicate that workers at Chevron’s Wheatstone and Gorgon LNG plants are set to go on limited strike from 7th Sep’23, potentially impacting exports of 24.5mt (~88mmscmd) of combined capacities at the two terminals. This represents ~5% of global LNG liquefaction capacity (link here). We note that this action, if it escalates to a full-scale suspension of work can create material tightness in global LNG markets.

Q1FY24 earnings for I-Sec’s oil & gas coverage universe were weak YoY for most sub-segments except the oil marketing companies (OMCs). This helped offset sharp declines in upstream and gas utilities, and muted growth in CGDs and RIL for Q1.

The data from LNG markets (link to latest IGU LNG note here) suggests a huge influx of export capacity over the next 5 years, with the US leading the way in both confirmed projects (FID cleared) as well as anticipated projects (pre-FID) for liquefaction capacity over CY23-28E.

The 12 oil & gas companies under our coverage are likely to deliver strong YoY performance in Q1FY24E. We expect aggregate operating earnings (EBITDA) to surge 73% YoY to Rs968bn and net income 138% YoY to Rs502.0bn.

The recent updates from industry associations such as OPEC and IEA point to crude demand remaining muted in the near term. However, the same associations have continued to maintain their strong demand growth estimates for CY23 (estimated at 1-2.3mb/d for CY23).