Oil and Natural Gas Corporation (ONGC) and Brent crude have been moving in opposite directions lately, and thatβs exactly what caught my attention. Over the past few weeks, Iβve found myself watching oil markets more closely than usual, not just because crude prices have been climbing sharply, but because something didnβt quite add up. Normally, when global oil prices rise, upstream companies, the ones that actually produce crude, tend to benefit. Their revenues improve, margins expand, and investors usually reward them. But this time, things feel different. Even as Brent crude has remained above $100 per barrel, shares of ONGC have been heading in the opposite direction. And that discrepancy was precisely what stood out for me.
In this article, I discuss the reasons behind Oil and Natural Gas Corporationβs shares taking a hit amid a sharp rise in global crude prices. While an increase in Brent crude generally bodes well for upstream oil producers, reasons such as government policies, windfall taxes, geopolitical tensions, and changing market sentiment have led to an unusual gap between oil prices and ONGCβs stock movements.
The Strange Disconnect Between Oil Prices and ONGC Stock
ONGC shares have declined in most trading sessions during March alone. Over just a few days, the stock has dropped around 4%, and if I zoom out slightly, the decline becomes even more noticeable.
Whatβs surprising is that during the same period, global crude prices have surged, rising over 40% in just about two weeks.
If youβve followed energy markets even casually, youβd expect ONGC to rally in such an environment. After all, higher oil prices typically translate into better realisations for upstream companies.
How Upstream Companies Usually Benefit
To understand whatβs going on, I had to go back to basics.
Above the ground, ONGC and other upstream companies make money by extracting crude oil and selling it along with oil-linked gas. When the price of oil goes up in the world market, so does its selling price. While downstream oil marketing companies grapple with rising input costs, upstream players are generally in a good spot.
In a country like India, which imports a large portion of its crude oil, this dynamic becomes even more important. A weakening rupee combined with rising crude prices generally boosts the earnings of domestic producers.
On paper, ONGC should be in a strong position right now. But markets, as Iβve learned over time, rarely move based on theory alone.
The Policy Factor That Changes Everything
The more I dug into this, the clearer one thing became: this isnβt just about oil prices. Itβs about policy.
A significant factor contributing to ONGCβs dismal performance over the past few months is the impact of government interventions, especially the windfall tax, formally called the Special Additional Excise Duty (SAED). When oil hits the high notes, the government intervenes to tax what it calls βexaggerated profits.β While this is helping keep inflation and fiscal balances in check, it also means that high crude prices will not help companies such as ONGC to the extent possible.
In simple terms, even though ONGC is earning more per barrel, it doesnβt get to keep all of that upside. And investors know this. Thereβs also the issue of natural gas price caps on legacy fields, which further restrict revenue potential. So, while global prices are rising freely, domestic realisations are effectively controlled. This creates a structural disconnect, one that the stock market is clearly pricing in.
Also Read:Β Coal India Jumps 4% Amid Energy Supply Fears
Global Tensions Are Adding Another Layer of Pressure
And at the same time, I canβt in good conscience overlook the larger geopolitical context.
The recent escalation between the United States, Israel, and Iran will likely have profound impacts on energy supply chains all over the globe. The fact that the Strait of Hormuz, one of the worldβs most important oil transit routes, has been temporarily closed is only adding to fears.
Significant production centres in countries including Iraq, Saudi Arabia, and Kuwait have been disrupted, and vital infrastructure in Qatar has also been impacted.
Ironically, though, instead of boosting ONGCβs stock, these developments have triggered a broader βrisk-offβ sentiment in markets. Foreign institutional investors (FIIs) are withdrawing money, and large-cap stocks like ONGC have been under pressure. Itβs one of those moments when macro fear trumps sector logic.
Market Sentiment vs Fundamentals
Another thing Iβve observed is the speed at which sentiment can shift, particularly under conditions of uncertainty. ONGC had recently come close to levels around βΉ293, and from a technical standpoint, that appears to have acted as a resistance zone. The stock has since lost ground below important moving averages, which can trigger additional selling.
Even long-term investors will take a step back in such periods, sitting on their hands until signals for re-entry are clearer. So, even though fundamentals like high crude prices remain supportive, short-term technicals and investor sentiment are weighing on the stock.Β
What Brokerages Are Saying
Interestingly, there are positive signals too. Some brokerage reports say crude prices are high enough to continue supporting earnings growth, at least in theory.
For example, estimates suggest that every $5 increase in Brent crude above the level of $70 would push ONGCβs earnings per share significantly higher. But thereβs a catch. This upside is conditional; it hinges on whether the government lets companies keep those gains. And that uncertainty is precisely whatβs keeping investors on guard.
Some analysts currently favour Oil India Limited over ONGC for now, due to better visibility on production growth. Thatβs another subtle but important factor: growth expectations matter just as much as current earnings.
So, What Does This Mean for Investors?
If thereβs one thing this situation has reinforced for me, itβs that markets are rarely straightforward.
At first glance, rising oil prices should have been a clear positive for ONGC. But once you layer in government policies, geopolitical risks, investor sentiment, and technical factors, the picture becomes far more complex.
Right now, ONGC seems to be caught in the middle of multiple opposing forces:
- Support from high crude prices
- Pressure from policy interventions
- Weak sentiment due to global tensions
- Technical selling in the short term
For long-term investors, the bigger question is whether these headwinds are temporary or structural.
My Take
Personally, I donβt see this as a simple βoil up, stock upβ story anymore.
ONGCβs performance today reflects a deeper reality, one where policy decisions and macro risks can outweigh even strong commodity tailwinds. That doesnβt necessarily make the company weak. But it does make the investment case more nuanced.
And as an investor (or even an observer), I think thatβs the key takeaway here. Sometimes, the most obvious trade isnβt the right one.
Also Read:Β Oil India & ONGC Surge 10% Amid Geopolitical Risk
Disclaimer
This article is for informational purposes only and reflects personal views and analysis. It should not be considered as investment advice. Stock market investments are subject to market risks, and readers are advised to conduct their own research or consult a financial advisor before making any investment decisions.
