Shares of state-owned oil refineries advanced on Tuesday as global crude oil prices continued their descent. Bharat Petroleum Corporation (BPCL) was the biggest gainer among oil refineries as its shares gained 3.8%. Indian Oil Corporation (IOC) and Hindustan Petroleum Corporation (HPCL) advanced 3.7% and 2.59%, respectively. Prices have dipped to the lowest in six years as analyst downgraded crude oil.
The West Texas Intermediate (WTI) crude oil, one of the benchmarks in oil pricing, was trading at $41.61 per barrel, which is the lowest since March 2009. The Brent Crude Oil was trading at $48.41 per barrel, hitting the lowest in seven months. The fall in prices was triggered by the excessive supply due to increase in shale oil production by the US and also the falling demand in Europe and China.
The price of crude oil is going to slide further, said industry experts. “A break below $40 in the oil price will happen in a matter of time even if there is undoubtedly scope for a short-term bounce. This is because shale production is becoming ever more efficient and, hence, the marginal cost of production keeps falling,” said Christopher Wood, MD & chief strategist, CLSA, in a note to investors. On Indian exchanges, the trading volume of PSU oil companies also rose. More than 21.61 lakh BPCL shares changed hands on BSE and NSE compared to the three-month daily average volume of 16.82 lakh. A little over 29.26 lakh IOC shares were traded on both the exchanges, 1.58 times their three-month daily average volume.
“The sector is seeing a normalised operating environment after a long time. With Brent prices remaining soft, margins are going to trend higher than anticipated. With the margins on diesel increasing, I see the strong performance of the Indian oil companies to continue,” said Pinakin Parekh, analyst, JP Morgan. Experts said the situation for oil companies in India is gradually improving due to deregulation of diesel prices and lower global crude prices. JPMorgan said earnings of Indian oil companies were benefiting from the low interest rates and lower oil prices in global markets.
“The ongoing reforms have the potential to change the oil manufacturing companies into a structural investment play. With the retail pricing freedom post-diesel deregulation, the profitability of OMCs is set to improve, led by lower interest costs and higher auto fuel marketing margins,” said Harshad Borawake, vice-president – research, Motilal Oswal Securities. fe Bureau