Focus on windfall tax review leads to oil stocks ending in the green

Shares of oil companies such as Reliance Industries (RIL), Oil and Natural Gas Corporation (ONGC) and Chennai Petroleum Corporation rose on Thursday amid reports that the government was considering a reduction in the levy of new taxes on petrol, diesel and aviation turbine fuel (ATF), which was announced on July 1.

A Bloomberg report had suggested that the Centre was mulling a cut in the windfall tax as early as Friday due to a crash in global crude oil prices. On a day when the broader market was down, BSE Sensex lost 98 points or 0.18 per cent to end at 53,416 points, the BSE Oil & Gas Index was up 291 points or 1.6 per cent to close at 17,949 points, data compiled by BS Research Bureau, shows.

On the BSE, shares of RIL jumped 2.4 per cent in intraday trade. Those of ONGC rose 6.4 per cent and shares of MRPL and Chennai Petroleum Corporation climbed 4 per cent each during intra-day trade.

RIL and MRPL eventually ended the day flat at Rs 2,397 per share and Rs 71.8 apiece, respectively, ONGC and Chennai Petroleum, on the other hand, closed trade up two per cent each over the previous day's close at Rs 127.2 and Rs 268.7 a share.

The Brent crude price has corrected sharply in the last one month on recession fears, moving from $120 per barrel to $97 a barrel on Thursday.

Export taxes on petrol are likely to see the steepest reduction, while levies on diesel and jet fuel could also be lowered to adjust the impact of price declines, the Bloomberg report had said.

On Wednesday, a report by brokerage CLSA had indicated that a massive crash in refining margins of diesel, petrol and ATF coinciding with a cool-off in crude oil prices from their peaks in June had diminished the super-profits of refiners.

"This questions the need for the continuation of the windfall tax imposed about two weeks ago," CLSA said.

The finance ministry had indicated at the time of the announcement of the new taxes on July 1 that it would review it every fortnight.

CLSA said that following implementation of the windfall tax, the realised spread on diesel and petrol had fallen to near loss-making levels while the realisation on aviation fuel and crude had also gone below their 15-year averages. “A $12 per barrel windfall tax on this takes the realised refining spread down to a near loss-making level of just $2 per barrel. Similarly, the diesel spread after the export tax of $26 per barrel would be a meagre $2 a barrel," it said.

The tax, if continued for long, would hamper the position of India as an export and manufacturing-friendly hub, CLSA said.