The seemingly low 12 per cent gain in the BSE Oil and Gas index in 2014 conceals more than it reveals. In the pack were big gainers such as the oil marketing companies HPCL, BPCL and Indian Oil (up 55-130 per cent) and also losers such as Cairn India, which slipped 26 per cent.

What gives? The sharp fall in crude oil prices from $115 a barrel in mid-June to less than $60 a barrel by December saw stocks react differently. The rout of crude oil allowed the freeing up of diesel price; this means a deep cut in the under-recoveries of the oil marketing companies. The public sector upstream companies ONGC and Oil India, which share a chunk of the under-recovery burden, also saw their stocks rise sharply. But the enthusiasm waned with apprehensions about the companies’ net realisations falling unless the Government cut their subsidy share in LPG and kerosene. Still, their stock performance (up 18 per cent) was much better than Cairn India whose fortunes are linked to crude oil prices.

Reliance Industries disappointed. The domestic gas price hike was lower than its expectations. This, along with worries about the company’s refining and petrochemicals realisations being impacted by the dip in crude oil, kept the stock grounded. Cheaper crude oil-based raw material helped lubricant maker Castrol India gain a tidy 62 per cent on the bourses. Gas importer Petronet rallied 71 per cent on hopes of more volumes due to domestic gas shortage and low international gas price. Gas transmitter GAIL, up 30 per cent, saw some reversal of earlier gains primarily due to concerns on gas transmission volumes.

Mixed fortunes

What’s in store for 2015? As things stand, it seems crude oil could remain under pressure in 2015 — global demand is weak and the market may remain oversupplied. So, stocks such as Cairn India could remain subdued. A clear and fair subsidy-sharing mechanism which ensures better realisations for ONGC and Oil India is critical for these stocks to sustain performance. While there may not be much respite for Reliance Industries in the near-term, the stock is a good long-term bet, given its massive expansion plans.

Petronet and GAIL may be under pressure this year. The former has to contend with capacity constraints at its Dahej plant and its idling Kochi plant, while low transmission volumes could weigh on the latter.

Indian Oil, HPCL and BPCL will benefit from a sharp dip in under-recoveries on diesel, though inventory losses due to weak crude oil could be a drag in the short-term. Castrol India should benefit from lower raw material cost and an expected up-tick in auto sales.

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