Oil Marketing Companies Witness Surge in Share Prices Amid Declining Crude Rates

Oil Marketing Companies Witness Surge in Share Prices Amid Declining Crude Rates

VoM News Desk | November 16, 2023 | 05:06 PM IST | Breaking News | Follow on Google News

Oil Marketing Companies Witness Surge in Share Prices Amid Declining Crude Rates

Oil Marketing Companies Witness Surge in Share Prices Amid Declining Crude Rates

Shares of major Oil Marketing Companies (OMCs) like Hindustan Petroleum Corporation Ltd (HPCL), Indian Oil Corporation Ltd (IOCL), and Bharat Petroleum Corporation Ltd (BPCL) experienced substantial gains of 2-4.1% in Thursday’s morning trades. This positive trend is attributed to the continuous decline in crude oil prices, which is positively impacting investor sentiments towards OMCs.

Brent Crude’s Price Drop Eases Margin Concerns

The Brent crude, which had approached the $100 per barrel mark in September, has seen a significant decrease, trading around $80.45 a barrel. High crude prices typically affect the marketing margins of OMCs, which are the profits earned from selling fuel at retail outlets. With auto fuel prices remaining relatively stable despite the rise in crude prices, concerns about the margins of OMCs were heightened.

Analysts’ Observations on OMC Margins

Analysts from Motilal Oswal Financial Services noted that the implied marketing gross margin (including inventory) for OMCs dropped to Rs 5.9 per liter in the second quarter, down from ₹8.8 a liter in the first quarter of FY24. This decline was mainly due to higher Brent prices and unchanged retail fuel prices during the quarter. At one point, OMCs were earning a marketing gross margin of ₹8.6 per liter on petrol but incurring a loss of ₹3 a liter on diesel.

Concerns Over Refining Margins

There were additional concerns regarding the refining margins, as benchmark Singapore Gross Refining Margins (GRMs) also witnessed a decline to $3.9 a barrel in the third quarter of FY24. This decrease is expected to impact the refining performance of OMCs in the upcoming quarter adversely.

Positive Impacts of Lower Crude Prices

Lower crude prices reduce the working capital requirements of OMCs, as they spend less on crude oil imports. Additionally, the weakening of the dollar following US inflation numbers in the past two days is also beneficial for OMCs, as it helps keep import costs in check.

HPCL Shares Rise on Business Developments

Specifically, for HPCL, the share prices have been positively influenced by news about the potential listing of its Lubricants business and the expected completion of the Vizag refinery expansion by early 2024. The expanded refinery is anticipated to yield the highest diesel in the country and bring an incremental Gross Refining Margin of $3-4 a barrel.

VoM News Desk

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