The Hindu Business Line : Higher crude prices pull down oil marketing cos

Mumbai, May 9 The continuing rise in crude oil prices and a depreciating rupee sent oil marketing companies’ (OMCs) stocks into a jittery mode, as a selling panic gripped the markets.

The BSE-Oil & Gas Index fell by 4.71 per cent on Friday, against the 2.01 per cent fall of the Sensex.

Marketmen attributed the panic in the markets partly to fears that these companies would face increasing under-recoveries.

Higher inflation

Of the 11 stocks which form the BSE-Oil & Gas Index, 10 declined and only one (ONGC) advanced.

“Markets started with a negative bias, as all the Asian markets traded weak today. Low gross refining margins reported in Singapore dragged down all the standalone refinery stocks,” said Mr Amitabh Chakraborty, President (equity), Religare Securities Ltd.

“Higher inflation spooked the market further. The WPI rose to 7.61 per cent against 7.57 per cent in the previous week. Also inflation for April was revised upwards to 6.21 per cent against 5.11 per cent reported earlier.

"Rise in crude prices, which touched $125, and fall in rupee added to the weakness. The oil & gas, realty and banking indices lost the most today due to concern over interest rate and crude prices.”

Crude prices have doubled in the past one year, said analysts. Crude oil prices continued their Northward journey in the quarter ended March 2008.

Crude reached a record price of $124.73 a barrel in New York; the rupee has been down by 5.1 per cent over the past year, falling to a 13-month low on Thursday, owing to refiners buying dollars.

Oil exploration cos

Rising crude price, however, is positive for upstream companies such as Cairn India, which are into oil exploration, said analysts.

“Upstream companies such as Cairn India, which are into exploration of oil are getting higher benefit from higher crude prices,” said Mr Sudeep Anand, Analyst, Religare Research. Cairn India dipped 1.99 per cent on Friday, but is up 8.93 per cent since a week ago.

“OMCs would be the biggest hit with the rising crude prices,” said an analyst with a Mumbai based brokerage. “The oil marketing companies have reason to worry, as there is pressure on their margins and they might have to book losses,” said Mr Rohit Nagraj, Analyst, Angel Broking.

Indian Oil Corporation was down by 1.59 per cent, HPCL by 1.56 per cent and BPCL by 2.51 per cent.

The silver lining seems to be the issuance of oil bonds that the Government gives to these public sector OMCs. “The Government is considering issuing oil bonds to the extent of 57 per cent or under recoveries; this is 42.7 per cent at present,” said Mr Nagraj.

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