OMCs in focus: HPCL, IOCL fall up to 3% as Brent crude nears $90/bbl

Shares of oil marketing companies were under pressure in Thursday's trade amid a persistent rally in oil prices. Among individual shares, Hindustan Petroleum Corporation (HPCL) declined 3 per cent to Rs 460 per share, while those of Indian Oil Corporation (IOCL) shed 2.7 per cent to Rs 169 per share.

Bharat Petroleum Corporation (BPCL), too, fell 2.5 per cent to Rs 595.5 per share in the intraday trade. By comparison, the S&P BSE Sensex was up 0.27 per cent, but the S&P BSE Oil and Gas index was down 1.5 per cent at 1:15 PM. 

Brent crude price has surged nearly 10 per cent over the past one month, and are hovering near their highest level since October 2023. On Wednesday, April 4, the price hit a level of $89.8 per barrel, rising from around $80 per barrel level a month ago.

 

The rally comes amid rising geopolitical tensions between Russia and Ukraine, and in the Midde East. 

For instance, a Reuters report suggested that a Ukrainian drone struck one of Russia's biggest refineries on Tuesday. The unit affected by the attack, as per the news agency, accounts for about half of the plant's total annual production capacity of 340,000 barrels per day (bpd). 

Meanwhile, in the Middle East, Iran has vowed to take revenge on Israel for an airstrike that killed two of its top generals and five other military advisers at the Iranian embassy compound in Damascus.

Add to it, the OPEC (Organisation of Petroleum Exporting Countries) meeting, on Wednesday, decided to continue with the present production output cuts in the coming months.

The meeting reviewed the crude oil production data for the months of January and February and noted the high conformity for participating OPEC and non-OPEC countries of the Declaration of Cooperation.

The committee welcomed the pledge of Iraq and Kazakhstan to achieve full conformity as well as compensate for overproduction. It also welcomed the announcement by Russia that its voluntary adjustments in the second quarter of 2024 will be based on production instead of exports.

Q4FY24 preview

Singapore gross refining margins (GRMs) fell 10 per cent year-on-year (Y-o-Y) in the March quarter, but were up 43 per cent Q-o-Q, led by weak global product cracks. Diesel (HSD)/petrol (MS) cracks are down 17 per cent/12 per cent Y-o-Y, respectively. On a Q-o-Q basis, however, they were down 19 per cent / up 2 per cent, respectively. 

That apart, diesel marketing margins were back in the black at Rs 3/litre vs negative Rs 0.5/litre Q-o-Q, while petrol margins improved by 12 per cent to Rs 7.5/litre in Q4FY24. 

Against this, analysts at Nuvama Institutional Equities peg GRM of $12/$10/$8 per bbl for BPCL/IOCL/HPCL as against $21/$15/$14 Y-o-Y. The brokerage also expectd overall refinery runs to decline 700bp Y-o-Y led by maintenance shutdown across few refineries. 

"Brent averaged at $83/bbl in Q4FY24, down 2 per cent Q-o-Q; however, it closed $9/bbl higher at $87/bbl between the two quarter ends, thereby resulting in refining inventory

gains of $2/bbl (but could accrue mainly for HPCL). Sizeable marketing inventory losses across OMCs should be there due to cuts in retail selling prices," noted analysts at Emkay Global.