Indian Oil Companies Like Indian Oil, BPCL, HPCL May Gain From Fall In Crude.

MUMBAI: The global uncertainty after the US could lead to a fall in the prices of crude oil, which could turn out to be a blessing for the oil marketing companies (OMCs) in India, especially the PSUs. Over the last few days, mainly after the US data showed its economy was slowing again, the stocks of Indian Oil, BPCL, HPCL and Mangalore Refineries have gained. Besides, private refiners like RIL and Essar Oil will also gain from low crude oil prices.

On Friday, the shares of HPCL and BPCL gained about 2% each and IOC gained about 1%, while the benchmark sensex fell over 2%. This came as brent crude oil prices, which have been trading around the $110 a barrel range, slid near the $100 level on Friday. If there are further signs of weakness in the US economy, the price could go below the triple-digit mark, and that would be comforting for Indian OMCs.

"Its very difficult to predict crude oil prices but India will be quite comfortable with crude oil prices hovering around $90 a barrel," said R K Singh, CMD, BPCL. However, for the April-June quarter, state-owned OMCs are expected to pose losses, mainly because of the high crude oil prices during those months and also because the higher costs could not be passed on to the consumers in full. These firms are still selling diesel, kerosene and cooking gas below market prices.

"The fall in crude is seen as a positive for three OMCs and for ONGC and OIL India," said investment advisor S P Tulsian. "OMCs will have lower under recovery while upstream companies will have lower under recovery sharing, which may even see them realizing about $55 per barrel as well," Tulsian said.

The stocks of OMCs could get a further boost if the government moves ahead in deregulating petro-product prices. "For an investment horizon of 18-24 months, we expect the OMCs to outperform all the other sector large caps driven by potential government measures for eventual elimination of under-recoveries, either through deregulation or through ad hoc decisions on price/duties," Alok Deshpande of Elara Capital noted in a research report. The broking house has set a price target of Rs 800 for BPCL, Rs 400 for HPCL and Rs 365 for IOC, indicating returns of over 15% in each of these stocks.

Another positive news for OMCs is that an empowered group of ministers is expected to meet on Monday to review the global crude oil prices, its impact on India and measures to protect revenues of OMCs. India, which imports over 80% of its crude oil requirement, is worried as prices soared from $68 a barrel in May 25 last year to $122 in just one year. And the government estimates fuel subsidy bill for the current financial year at over Rs 1.2 lakh crore.

Source : economictimes.indiatimes.com