ONGC Rating ‘Hold’; Downside risks to oil price a concern

HSBC’s global oil & gas team sees near-term downside price risks to oil prices. This is alluded to in an anticipated conservative OPEC+ agreement supporting prices in the short term, but there is still much more spare capacity in OPEC+ than there is likely demand growth. There will be a need for continued OPEC+ restraint through the balance of 2021 and probably beyond, in our view. This may prove challenging if prices stay firm, while the group may face difficulty absorbing at least 1.5mbd more Iranian exports in the event of sanctions being lifted.

Much will continue to depend on Saudi oil policy but its leverage will remain high—even without the voluntary cut, its spare capacity should still be c2.5mbd in Q22021. Our 2021/2022 Brent forecasts remain at $56/b and $60/b. A $1/bbl change in the oil price from our current assumption impacts our FY22 earnings estimates by c3%.