Oil Marketing Companies Gain on Declining Crude Oil Prices

FILE PHOTO: A general view of the Bombay Stock Exchange (BSE) in Mumbai, India, January 21, 2021. REUTERS/Francis Mascarenhas

VoM News Desk | November 28, 2023 | 01:25 PM IST | Energy | Follow on Google News

Oil Marketing Companies Gain on Declining Crude Oil Prices

Oil Marketing Companies Gain on Declining Crude Oil Prices

Shares of major Oil Marketing Companies (OMCs) in India, including Hindustan Petroleum Corporation Ltd (HPCL), Bharat Petroleum Corporation Ltd (BPCL), and Indian Oil Corporation Ltd (IOCL), witnessed substantial gains on Tuesday. This increase in share prices is attributed to the decline in crude oil prices. HPCL, in particular, saw its share price rise by more than 5%, reaching a 52-week high in morning trading sessions. Indian Oil Corporation and Bharat Petroleum Corporation also experienced notable gains, with their stock prices increasing up to 4% on the BSE.

Impact of Crude Oil Price Fluctuations

The Brent Crude prices, which had escalated to nearly $100 a barrel in September, have recently dipped below $80 a barrel. Interestingly, the ongoing Israel-Hamas conflict has not significantly disrupted crude supplies as initially feared. The decrease in crude oil prices has positively influenced investor sentiment towards OMCs, as it leads to an improved outlook on marketing margins. These margins represent the profit companies make from selling fuel through retail outlets.

OMCs’ Response to Crude Price Changes

OMCs have been absorbing the impact of higher crude prices since retail fuel prices remained unchanged despite the rise in crude prices. With the recent correction in crude prices, OMCs are expected to see a normalization in their marketing margins. HPCL, which has a significant portion of its revenue coming from retail sales of petroleum products, witnessed the highest increase in share prices.

Refining Margins and Company-Specific Gains

The decline in crude prices not only improves the marketing margin outlook but also benefits refining margins. This is particularly positive for companies like Indian Oil Corporation, which derives a substantial portion of its revenue from refining crude oil into various petroleum products. The Reuters Singapore complex refining margin, a benchmark for the industry, had previously dropped by 54% sequentially to $4.4 a barrel from $9.6 a barrel in 2QFY24. This decline was primarily due to decreased spreads for all products except Liquefied Petroleum Gas (LPG). However, as per Nomura Research, these refining margins had improved to $6.4 a barrel by November 20, 2023, which particularly bolsters sentiments towards Indian Oil Corporation, along with Bharat Petroleum Corporation.

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