OMC stocks up 16% in 4 sessions as crude hits 3-year low, but 4 key risks still loom
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A sharp 6% correction in crude oil prices has fueled a rally in state-run oil marketing companies (OMCs), with stocks gaining up to 16% over four consecutive sessions. Investors are optimistic that lower crude prices will boost OMC margins, but several headwinds persist, including higher crude oil imports from the US, LPG under-recoveries, and a depreciating rupee.
The prices of Brent and US WTI crude are falling as the US President Donald Trump is pushing the Organization of the Petroleum Exporting Countries (OPEC) to produce more oil. The consortium has responded in the positive and has stated that it will increase the crude oil production, starting this April.
“A $70/bbl oil brings OMCs back to the sweet spot with CP diesel/petrol gross marketing margins at Rs 8/12 per liter, which more than offsets Rs 250/cylinder of LPG under-recoveries, which can fall further with upcoming summer seasonality,” Emkay said in a note.
This brokerage sees crude oil prices to fall around $60s/bbl temporarily, though $70-75/bbl could be a more probable range now versus $75-80/bbl earlier. Over the last four sessions till Thursday (10 am), shares of Indian Oil Corporation (IOC) have gained 11% while those of Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (BPCL) were up by 16% and 11%, respectively.Kranthi Bathini, who is a Director-Equity Strategy at WealthMills Securities sees this as a big positive for the state-run oil refiners. He underscored that the US will produce more oil going ahead and higher supplies would keep the prices down thus improving the margins of the OMCs. He remains positive on HPCL and IOC with a long term view.Bumpy ride
But the ride for OMC stocks has been bumpy as they have seen a decline of up to 33% over the last six months and the recent trend is suggestive of a waning investor interest in them. Moreover, many top brokerages and experts have also turned wary of the sector.
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The crude prices are currently at a 3-year low and Brent has slipped below the $70/ bbl mark while the US WTI is hovering around $66/bbl.
The prices of Brent and US WTI crude are falling as the US President Donald Trump is pushing the Organization of the Petroleum Exporting Countries (OPEC) to produce more oil. The consortium has responded in the positive and has stated that it will increase the crude oil production, starting this April.
OPEC has decided to proceed with gradual rollback of the 2.2mbpd voluntary production cut effected in November 2023 and the cuts will be rolled-back up to September/December 2026.
“A $70/bbl oil brings OMCs back to the sweet spot with CP diesel/petrol gross marketing margins at Rs 8/12 per liter, which more than offsets Rs 250/cylinder of LPG under-recoveries, which can fall further with upcoming summer seasonality,” Emkay said in a note.
This brokerage sees crude oil prices to fall around $60s/bbl temporarily, though $70-75/bbl could be a more probable range now versus $75-80/bbl earlier. Over the last four sessions till Thursday (10 am), shares of Indian Oil Corporation (IOC) have gained 11% while those of Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (BPCL) were up by 16% and 11%, respectively.Kranthi Bathini, who is a Director-Equity Strategy at WealthMills Securities sees this as a big positive for the state-run oil refiners. He underscored that the US will produce more oil going ahead and higher supplies would keep the prices down thus improving the margins of the OMCs. He remains positive on HPCL and IOC with a long term view.
Bumpy ride
But the ride for OMC stocks has been bumpy as they have seen a decline of up to 33% over the last six months and the recent trend is suggestive of a waning investor interest in them. Moreover, many top brokerages and experts have also turned wary of the sector.
The OMCs reported weak Q3FY25 earnings on the back of lower GRMs or gross refining margins, inventory losses and Rs 11,700 crore worth of under-recovery in LPG despite strong marketing margins, Antique Stock Broking said in a note.
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