Shares of oil marketing companies Hindustan Petroleum Corp., Bharat Petroleum Corp., and Indian Oil Corp. gained on Wednesday after the international benchmark Brent crude oil price tumbled to a nine-month low, slipping below the $75 per barrel mark.
Expectations that the political turmoil may soon resolve, leading to the resumption of exports from Libya coupled with lingering concerns over lower global demand growth, caused oil prices to drop 4% on Wednesday. Oil has now given up almost all of its gains this year, and is down over 15% since the start of July.
OMCs are significant beneficiaries when crude oil prices decline. Their earnings primarily rely on two segments: refining and marketing. The refining segment involves transforming crude oil into valuable products like petrol, diesel, and jet fuel, while the marketing segment focusses on the distribution and sale of these refined products.
Indian Oil, BPCL, and HPCL have kept their retail prices for petrol and diesel unchanged for the past 28 months. Consequently, the fluctuations in oil prices and refining margins now closely influence their marketing margins. With oil prices on a downward trend and global refining margins recovering, this situation is favourable for oil marketing companies.
The market has seen a significant decline in oil consumption in China and the Organization of Petroleum Exporting Countries is sitting on spare capacity of 6 million barrels, said Nirav Sheth, chief executive officer of institutional equities at Emkay Global Financial Services Ltd.
"There are structural headwinds in oil demand growth. The Indian economy is consuming far less oil per unit of GDP than we were doing 10 years ago," he told NDTV Profit.
Shares of HPCL rose over 4% to hit 52-week high of Rs 443.5 apiece. It was trading 3.7% higher at Rs 437.7 as of 10:15 a.m.
BPCL stock gained 2.4% to touch an intraday high of Rs 363.95, while IOCL gained 2% to an intraday high of Rs 179.9 apiece.
The benchmark Nifty 50 was trading 0.57% lower, while the Nifty Energy index was down 0.85%.
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