Business Today

Oil and gas stocks end lower as govt may soon decide on cut in petrol, diesel prices

Moody's said Oil and Natural Gas Corp and Oil India face increasing risk that govt will require them to share in fuel-subsidy burden, as oil prices rise. Firms have not contributed to fuel subsidies since June 2015, but had paid for over 40 percent  of the annual subsidy bill in previous years, Moody's said.

twitter-logo BusinessToday.In        Last Updated: May 24, 2018  | 09:12 IST
Oil and gas stocks end lower as govt may soon decide on cut in petrol, diesel prices

 

Stocks of oil companies closed lower on Wednesday after the government was said to be considering cutting petrol and diesel prices after fuel prices reached record highs post declaration of Karnataka election results.

According to a report, Oil Minister Dharmendra Pradhan was expected to meet officials of oil marketing companies (OMCs) and take stock of the situation. The cut is likely to be in the range of Rs 2 to Rs 4 a litre, and government may ask Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) to freeze prices as a temporary arrangement. 

With brent crude oil prices trading just below $80 per barrel, OMCs are estimated to be suffering Rs 500 crore loss daily absorbing higher costs resulting from the spike in international oil rates and fall in rupee against the US dollar. While HPCL closed 8.06% or 25.15 points lower at 286.95, Bharat Petroleum Corporation was down 5.56% to 375.20.

The Indian Oil Corporation stock fell 4.89% to 153.65 on BSE. Stocks of upstream companies such as ONGC (4.75%) and Oil India Ltd (3.16%) closed lower on BSE.

Moody's said Oil and Natural Gas Corp and Oil India face increasing risk that govt will require them to share in fuel-subsidy burden, as oil prices rise. Firms have not contributed to fuel subsidies since June 2015, but had paid for over 40 percent  of the annual subsidy bill in previous years, Moody's said.

Oil marketing firms such as Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp have shared less than 1 percent of total fuel subsidies since FY2012, and it is unlikely that proportion of such costs will rise.

In fact, HPCL was the top loser on Nifty closing 8.02% lower. BPCL too fell 5.57% on the index. The BSE oil and gas index was among the top losers on BSE falling  3.45% or 491 points to 13,762 level. 

Saurabh Jain, assistant vice president, research at SMC Global Securities said, "Oil companies are down on concerns that in the next 2-3 days there will be some kind of resolution as government officials are taking stock of the situation on how to encounter rising petrol and diesel prices." "I think market is anticipating that government may work out the historical formula wherein the burden is shared by all three - downstream, upstream companies and the government - which would be a whammy on the profitability for the these firms," he said.

Meanwhile, sentiment around the HPCL stock also became negative after the state-owned firm reported a 4 per cent drop in its March quarter net profit on lower refining margins and inventory gains. Net profit in the January-March quarter of the fiscal year 2017-18 at Rs 1,748 crore compared with a net profit of Rs 1,819 crore in the year-ago period, HPCL Chairman and Managing Director Mukesh K Surana said. "The profit decline was because of lower inventory gains compared to the previous quarter," he said. HPCL, which operates oil refineries at Mumbai and Visakh in Andhra Pradesh, earned $7.07 on turning every barrel of crude oil into fuel in the fourth quarter as compared to a gross refining margin of $7.99 per barrel a year ago. Also, the company had lower inventory gain of Rs 157 crore in the three months ended March 31, 2018, as against Rs 460 crore last year, Surana added.

 

Youtube
  • Print

  • COMMENT
BT-Story-Page-B.gif
A    A   A
close