OMCs in focus as crude oil hits 1-year low; BPCL, HPCL surge up to 5%

Shares of state-owned oil marketing companies (OMCs) were in focus on Thursday, rallying up to 5 per cent on the BSE in an otherwise volatile market after crude oil prices fell over 6 per cent overnight. The oil prices quoted at the lowest level since more than a year due to recent fears related to the banks in the US and Europe.

Following fall in crude oil prices, the stock price of Bharat Petroleum Corporation (Rs 346.35) and Hindustan Petroleum Corporation (Rs 241.45) rallied 5 per cent each, while Indian Oil Corporation was up 2 per cent at Rs 80.15 on the BSE. In comparison, the S&P BSE Sensex was up 0.14 per cent at 57,635 at 10:53 AM.

With this decline in crude prices analysts expect marketing margins of HPCL, BPCL and IOCL to improve further. Margins on diesel are currently at around Rs 3/litre while margins on petrol are at around Rs 6/litre, as per our estimates. On a blended basis, currently these margins are at around Rs 4/litre, ICICI Securities said.

Analysts at Prabhudas Lilladher believe OMCs, are all well placed to benefit from improving marketing situation and healthy refining profitability.

Improving marketing environment along with strong gross refining margins (GRMs) will drive near term earning given improved marketing margin (Rs 1.8/ltr) post sharp correction in international diesel prices to ~$110 (recent peak of $170/bbl), firm refining product spreads due to ban on import of Russian oils and range bound oil prices due to global recessionary pressure and high interest rates, despite increased demand from China, the brokerage firm said.

In Q3FY23 OMCs turned profitable at Rs 2,740 crore after H1FY23 losses of Rs 22,700 crore given improvement in marketing margins (blended marketing loss Rs 1.6/ltr) and healthy refining margins at $9.1- 15.9/bbl.

Going forward, the brokerage firm expects OMCs to report profits of around Rs 12,800 crore in Q4FY23, based on current marketing margin trends and stock performance to reflect improving fundamentals.