On September 11, shares of major upstream oil companies including Oil and Natural Gas Corporation (ONGC), Oil India, and Hindustan Oil Exploration Company experienced a significant decline, falling by up to 5%. This drop in stock prices is closely tied to a slump in Brent crude prices, which have recently fallen to their lowest level in almost three years.

Impact of Brent Crude Price Drop

The latest data reveals that Brent crude prices have slipped below $70 per barrel, marking the first time since December 2021 that prices have fallen to such lows. This decline in crude oil prices is primarily attributed to weak demand and a moderating economic growth. The rise in electric vehicle (EV) adoption has further compounded concerns about future oil demand, adding to the downward pressure on prices.

The Organization of the Petroleum Exporting Countries (OPEC) has also contributed to the bearish sentiment in the oil market by revising its 2024 oil demand forecast. OPEC now expects global oil demand growth of approximately 2 million barrels per day (bpd), which is 80,000 bpd lower than earlier projections. Additionally, the group has reduced its forecast for the following year to 1.7 million bpd, a cut of around 40,000 bpd from previous estimates.

This downward adjustment in OPEC’s forecast is largely driven by weaker consumption in China, the world’s largest crude importer. The ongoing surge in electric vehicle sales in China has created uncertainty in the oil market, contributing to the current price slump.

Market Reactions and Forecasts

In response to the weak price outlook, several brokerages have revised their crude oil price forecasts. Morgan Stanley has lowered its Brent price forecast from $80 to $75, while Bank of America has adjusted its outlook for the second half of 2024, reducing it from $75 to $90 per barrel. Goldman Sachs and UBS have similarly reduced their target prices to $80, driven by concerns over potential supply shortages.

For upstream oil companies like ONGC, Oil India, and Hindustan Oil Exploration Co, this weak price outlook poses significant risks. Falling crude oil prices directly impact their revenue and profit margins. As extraction costs remain relatively stable, the drop in oil prices can lead to lower profitability and weaker earnings, putting pressure on these companies' financial performance.

The market reaction has been swift, with Oil India being the hardest hit, with shares falling nearly 5%, followed by Hindustan Oil Exploration Co at around 4% down, and ONGC experiencing a 2% drop.

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