Suresh P Iyengar The shares of oil production and marketing companies have been on a slippery path and are falling much faster than the user industry on the back global crude oil production war besides expectations of lower demand due to slowing economy.
Shares of Indraprastha Gas and BPCL was down nine per cent and seven per cent at ₹342 and ₹333 while Petronet, HPCL, GSPL and GAIL were down over five per cent each at ₹191, ₹205, ₹182 and ₹71, respectively. Reliance Industries fell by four per cent to ₹969.
However, ONGC gained 10 per cent to ₹66 after the company announced an interim dividend of ₹5.
The BSE Oil and Gas index was down 334 points at 9,805 on Wednesday.
The demand for fuel from both transportation and aviation sectors has been fast drying up due to spread of Covid-19.
With no early relief from fast spreading Corona virus in sight, petroleum product demand is expected to be low at 2-3 per cent in the next fiscal, as well.
This apart, the falling crude oil and other product prices will lead to lower revenue and impact profit of oil marketing companies. A sudden decline in crude prices will also lead to inventory losses for oil marketing companies, said a recent Crisil Research report.
Moreover, slowdown in global demand is putting pressure on product spreads, impacting gross refining margins. For domestic oil explorers, the crash in crude prices would adversely impact revenue and profitability.
Oil prices collapsed to a new low early this month after Saudi Arabia announced plans to increase production to protect its market share.
Russia breaks ranks
Crude oil prices have already plunged to $45 a barrel on March 6, as Russia broke ranks with the Organisation of Petroleum Exporting Countries and allies, following differences over a cut in production during their meeting in Vienna.
The oil output war led to Saudi Arabia — OPEC’s largest producer — to announce a big discount of $6-8 a barrel on its April selling price, pulling down Brent prices by 30 per cent to $31 a barrel on March 9. Adding to investor worry, the price war comes when the global demand for crude plunged due to slowing economic activity due to Covid-19 pandemic.