Shares of state-owned oil producers ONGC and Oil India Ltd fell by more than 8% on Monday, 7 April, following a continued decline in crude oil prices over the past three days.
Crude prices tumbled at the start of the week, triggered by Saudi Arabia’s decision to significantly cut its benchmark crude price, the steepest reduction in over two years, that came amid rising concerns of a global economic slowdown fueled by intensifying trade tensions.
Brent crude dropped nearly 4% to $63.21 per barrel, its lowest in four years, after plunging 11% the previous week. West Texas Intermediate (WTI) was trading at $59.79 per barrel.
Saudi Aramco announced it would reduce the price of Arab Light crude by $2.3 per barrel for Asian buyers in May, just days after the OPEC+ group surprised markets with a larger-than-expected increase in production.
Meanwhile, trade tensions between the US and China are adding to the uncertainty. Despite fears of inflation and recession, US officials downplayed the economic impact of the latest tariffs. In response, China, the world’s top crude importer, announced retaliatory tariffs against the US.
The slump in oil prices is being driven by both the tariff-related uncertainty and the unexpected OPEC+ output hike. US President Donald Trump also urged OPEC+ to reduce oil prices as part of efforts to lower inflation and increase pressure on Russia over the Ukraine conflict.
Falling crude prices spell trouble for oil producers like ONGC and Oil India, as it compresses their profit margins. While crude prices drop, the prices of refined products may not adjust as quickly or in proportion. This could result in inventory losses for refineries holding stock purchased at higher prices.
Altogether, weakening demand and increased supply have reignited fears of a global oil surplus.
At 11:52 am, the shares of Oil India were trading 5.53% lower at Rs 337.95, and shares of ONGC were trading 3.73% lower at Rs 217.58 on the NSE.
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