Energy stocks advanced on Monday led by state-owned oil marketing companies (OMCs) as global crude oil prices declined to the lowest in three months amid speculation that a possible Grexit and China’s stock market turmoil may lead to weaker fuel demand.
Shares of Hindustan Petroleum (HPCL) rose 3.6% while those of Bharat Petroleum (BPCL) and the country’s biggest state-run refiner, Indian Oil (IOC) also advanced 2-3% each as Brent crude oil futures on the ICE slid below $60 a barrel for the first time since April.
Reliance Industries (RIL) advanced to its highest level since September 12 last year.
Lower oil prices will result in lower working capital cost and boost refining margins of downstream companies. Every $1 drop in crude oil prices will help India save about $1.5-2.5 billion in oil imports bill. Oil accounts for one-third of India’s total imports, based on last year figures.
Jefferies expects Q1 of fiscal 2016 to be another strong quarter for downstream companies like Reliance, BPCL, HPCL and IOC due to continued high GRMs, a pick-up in petrochemical margins, inventory gains and higher marketing margins.
“Refining and petrochemicals to drive strong quarter for RIL due to continued high GRM (estimated at $9.5 per barrel in Q1) and pick-up in petrochemical margins… PSU refining and marketing companies are also expected to report another strong quarter on the back of higher refining margins, inventory gains and higher diesel marketing margins post deregulation. We expect ebitda of these companies to be up anywhere between 60% and 140% y-o-y,” said Jefferies analyst Arya Sen in an investor note.
Brent slid below $60 a barrel for the first time since April amid mounting concern about economic stability in Europe and Asia.
Oil last week slumped the most since March amid speculation that the Greek crisis prompted investors to eschew riskier assets. Iran, the fourth-largest OPEC member, has estimated it could double crude exports from about 1 million barrels a day within six months of sanctions being lifted.
The market may see additional supplies from floating storage if a nuclear deal is reached with Iran, Morgan Stanley analysts including Adam Longson said in an e-mailed report dated July 6.