The Hindu Business Line : Oil stocks flare up as global crude price falls

OIL PSU stocks made a smart recovery as investors took note of several positives that may augur well for their balance sheets in the second half of the current fiscal.

ONGC moved up by 2.12 per cent to Rs 973. It has recovered 4.52 per cent in the past one week, but was still down 5.35 per cent from the level it had reached a month ago. BPCL, HPCL and IOC gained by 4.84 per cent, 4.33 per cent and 3.99 per cent, respectively. Mangalore Refineries and Bongaigaon Refineries also finished in the green. In the last one week, BPCL gained most (by over 11 per cent), while IOC recovered by 7.62 per cent and HPCL appreciated by 6.68 per cent.

According to industry sources, the recent slide in global crude price from its peak above $60 per barrel has been a reason for return of buoyant sentiment. The current average import price of crude from the standard basket, with a specific mix of sour and sweet varieties, is around $55 per barrel. "Had there not been heavy burden of subsidies on account of kerosene and LPG, this level would have been enough to make a decent operational profit for IOC, BPCL and HPCL," an industry insider said.

Mr S.V. Narasimhan, Director Finance of IOC, told Business Line that the falling crude price would definitely result in lesser under-recoveries and would have a positive impact on the balance sheet. The proposed issue of oil bonds is considered another positive for IOC, BPCL and HPCL.

Mr Narasimhan said that the Finance Ministry has already cleared the proposal and it is expected that it would be placed for discussion in the Winter Session of Parliament. The bond beneficiaries would be IOC, BPCL and HPCL.

Proposed refining capacities and change in the process configuration — use of heavier and cheaper crude for finished products through technological and operational efficiencies — have also been behind improvement in the outlook for IOC, BPCL and HPCL. Prospect of revival of old refinery proposals — Bina (BPCL) and Punjab (HPCL) — are also being considered by the market as positives for the long-term.

ONGC, with its largest oil assets, however, is fuelled by its growth prospects, particularly through acquisition of new oil and gas fields in the country and abroad. Gas marketing proposal is also considered a positive for ONGC in the long-term. "With MRPL, ONGC is gradually showing signs of becoming an integrated giant even though it is burdened by subsidies," an industry analyst said.

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