Shares of Oil India and Hindustan Oil Exploration Company fell by up to 5 percent

In early trading on September 11, shares of upstream oil businesses, including Oil and Natural Gas Corporation, Oil India, and Hindustan Oil Exploration Company, dropped as much as 5% in tandem with a decline in Brent crude prices that brought them to their lowest point in over three years.

For the first time since December 2021, Brent oil prices fell below $70 per barrel over night as worries about sluggish demand in the face of slowing economic growth and growing use of electric vehicles were a major factor. In the meanwhile, oil prices continued to decline as the Organization of Petroleum Exporting Countries (OPEC) cut its demand estimate for the second time in two months.

OPEC updated its estimate for oil demand in 2024, predicting growth of around 2 million barrels per day (bpd)—80,000 bpd less than first anticipated. The oil producers’ organization projects a 1.7 million barrel per day increase in demand for the next year, down from prior projections of around 40,000 barrels per day.

This negative adjustment comes after OPEC decided in August to downgrade its projection, mostly due to China’s declining consumption, which is the world’s biggest importer of crude oil. For months, worries about China’s declining demand have lingered, particularly in light of the country’s recent spike in purchases of electric vehicles. This has created uncertainty in the oil market.

Numerous brokerages have also become pessimistic about petroleum prices, with Morgan Stanley cutting its prediction for Brent from $80 to $75. This is due to indicators of slowing demand. In addition, Bank of America has lowered its projected price of crude oil for the second half of 2024 from $90 per barrel to $75. Amid concerns about possible supply constraints, Goldman Sachs has lowered its target price for petroleum to $80, while UBS is projecting the same price.

Upstream oil businesses are concerned about a lower crude price forecast because it might reduce their profit margins. Low crude prices will hurt upstream oil firms since they directly affect their revenue and profit margins. Declining prices result in decreased profitability and, thus, reduced profits, provided that extraction costs stay essentially constant.

According to those worries, the recent pressure on the shares of Oil and Natural Gas Corporation, Oil India, and Hindustan Oil Exploration Company has persisted. Of the three, Oil India suffered the most, with its shares plunging about 5%. Hindustan Oil Exploration Co. also saw a decline of almost 4%. ONGC’s stock dropped by almost 2% as well.