Experts Advise Shifting Investments to Oil Exploration Firms as Crude Hits $110 per Barrel

Stock market investors are advised to shift their focus from oil marketing companies to oil exploration and production firms as international crude oil prices settle at $110 per barrel. This new normal comes amid a prolonged conflict and the closure of the Strait of Hormuz. Seema Srivastava, Senior Research Analyst at SMC Global Securities, notes that prices remain elevated with no immediate solution in sight for the shipping disruption, requiring investors to adjust their plans.

Market Impact

Avinash Gorakshkar, Founder of Avinash Mentor Research, explains that exploration companies are benefiting from a widening price gap between crude oil and diesel in the international market. When the conflict began, crude was at $70 per barrel and diesel at $108 per barrel, but diesel now oscillates around $200 per barrel while crude sits near $115 per barrel. This pushes the price gap from $36 per barrel to $85 per barrel, helping exploration firms recover input cost losses. Gorakshkar recommends adding ONGC shares to portfolios since higher crude prices increase diesel export income for these firms, while Reliance Industries shares also remain a viable option during rising index trends.

Technical Outlook

Sumeet Bagadia, Executive Director at Choice Broking, points out that ONGC shares hold strong support at ₹220. Investors and existing shareholders are advised to hold the scrip with a strict stop-loss at ₹220, aiming for near-term targets of ₹240 and ₹250.

Context

Oil exploration and production companies extract crude from the ground, whereas oil marketing companies refine and sell petroleum products to retail consumers. When international fuel prices shift dramatically, marketing firms often absorb losses due to controlled domestic pricing, while exploration firms can gain from higher commodity realisations.