Oil marketing companies had a field day on Monday as the slump in crude oil prices will help them in reducing their under-recoveries — the losses incurred by selling fuel at lower price than market prices.
The BSE Oil and Gas index rallied the highest by 2.37 per cent at 8,561.17, while stocks of State-run HPCL and BPCL closed higher by 4.91 per cent and 5.44 per cent respectively at Rs 311.95 and Rs 394.70.
Indian Oil Corporation also ended the day higher by 3.75 per cent at Rs 201.65 on the BSE. ONGC jumped 3.45 per cent to Rs 319.15.
According to analysts, subdued global prices are likely to sustain in the near-term given the increase in global oil supply from countries such as the US, Canada, Iran and South Sudan. An additional 1.5 million barrel a day of supply is expected to hit the markets in 2013.
Oil and Gas Research Analyst Prabhudas Lilladher Deepak Pareek, said: “A weakness in international crude prices means a better outlook for OMCs as it implies lower shelling out for finance cost upfront and also removes the uncertainty of the Government compensation.”
OMC companies are impacted by the global crude prices and rupee-dollar dynamics, apart from the Government policy on diesel pricing. “We maintain an accumulate rating of both HPCL and BPCL with a target price of Rs 338 and Rs 441 respectively.
“We have based this on oil prices remaining at comparatively lower levels of around $105 a barrel and rupee remaining stable at Rs 53 to a dollar.”
Experts state that given the decline in global crude oil prices, the possibility of the Government announcing a diesel price cut is distant. “The Government is now likely to wait to see how the under-recoveries of OMCs come down before deciding the time of a diesel price hike in the future,” added Pareek.
manisha.jha@thehindu.co.in