The Hindu Business Line : Oil marketing companies gain from fall in crude prices

Over the week, these stocks have gone up by between 11 per cent and 18 per cent. BPCL rose 18 per cent, HPCL gained 17.72 per cent and Indian Oil Corporation went up by 11.25 per cent.

Even on Friday, when the Sensex was down more than 400 points, these stocks ended the day above their previous close. BPCL surged 8.67 per cent to close at Rs 357.95; HPCL rose 4.51 per cent to Rs 236.55 and Indian Oil Corporation rose 2.3 per cent to Rs 446.60.

Crude has fallen from its peak of $147 a barrel in June to $107 a barrel.

Analysts say that falling crude oil prices can help in reducing oil marketing companies’ under-recoveries. These companies have to sell at Government mandated prices while they have to buy crude at the ruling market prices, said the head of research at a brokerage.

Profitability

“If the price of crude remains below $110, it is good for these companies. The profitability of these companies will not be impacted too negatively if crude remains below $110,” said an analyst tracking the oil and gas sector at a brokerage.

However, the BSE Oil and Gas index was down almost two per cent on Friday. While the oil marketing companies are benefiting on the bourses from the fall in crude prices, the opposite seems to be happening to the oil producing companies, which have a higher weightage in the index.

In the last week, Cairn India was down eight per cent, Essar Oil was down five per cent and Reliance Industries (whose weightage in the O&G index is 56.22 per cent) was down 2.68 per cent.

On Friday, Cairn India fell 3.36 per cent to Rs 229, Essar Oil dropped 7.18 per cent and Reliance Industries fell 3.4 per cent.

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