The delay in diesel decontrol and rising crude oil prices have led to a sharp loss of interest in stocks of state oil marketing companies (OMCs) – Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation.
The volume of OMC shares traded on the Bombay Stock Exchange and the National Stock Exchange has declined to around one-fourth of what it was in June and July (see chart), when these companies saw tremendous interest following petrol decontrol.
“When petrol was decontrolled, the government said diesel decontrol would follow. However, this has not happened. Therefore, the turnover in these stocks is on a decline,” said investment advisor S P Tulsian.
OMCs, which purchase crude oil at market rates, sell diesel, kerosene and LPG at government-capped prices, resulting in losses. These losses are usually compensated by the government through a mix of cash and discounts from upstream companies like Oil and Natural Gas Corporation and Oil India Ltd.(Click for graph)
At present, OMCs do not incur any loss on sale of petrol, as the government decontrolled prices on June 25 in accordance with the suggestions of the Kirit Parikh group.
“When petrol was decontrolled, the market was upbeat on the sector. However, the mood subdued gradually. The volume of traded OMC shares has been going down as the market is awaiting clarity on deregulation,” said Jagannadham Thunuguntla, strategist & head of research at SMC Global Securities.
The petrol decontrol resulted in a price increase of Rs 3.50 per litre. Simultaneously, prices of diesel and kerosene rose Rs 2 and Rs 3 a litre, respectively, while that of LPG rose Rs 35 a cylinder. The move brought down OMCs’ underrecovery projection for the financial year to Rs 53,000 crore from Rs 75,000 crore, considering an average crude oil price of $75 a barrel.
Though the average crude oil price was estimated at $75 a barrel in June, it has significantly risen since then. November average for the Indian basket of crude oil is $84.20 per barrel. The current financial year average price has been $77.97 per barrel, up 11.76 per cent from the 2009-10 average.
When the government decontrolled petrol and raised prices of diesel, kerosene and LPG in June, OMCs were losing Rs 1.50 on every litre of diesel, Rs 15.07 per litre of kerosene and Rs 226.90 on every LPG cylinder. These losses have now widened due to a spike in crude oil prices. Now, OMCs are losing Rs 4.63 on every litre of diesel, Rs 17 on every litre of kerosene oil and Rs 272 per domestic LPG cylinder.
