OMCs take a hit on Dalal Street as global crude prices spike

Mumbai: Investor sentiment towards oil marketing companies (OMCs) such as Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp soured Monday after the Organization of Petroleum Exporting Countries (OPEC), a cartel of oil-producing nations, announced surprise cuts in output, leading to a spike in global crude oil prices.

Shares of downstream companies fell as much as 7% as analysts fear elevated crude oil prices would prolong the recovery in losses incurred by OMCs through 2022.

IOC declined 0.6% but HPCL and BPCL were the biggest losers among the oil and gas stocks, each falling over 4%.


"OMCs saw a knee jerk reaction on Monday," said Hemang Jani, head, equity strategy, broking and distribution, Motilal Oswal Financial Services. "

The spike in crude oil prices won't have an immediate impact, but if the prices remain elevated or head towards the triple-digit mark, it will have an aggregate impact not just on OMCs but the overall economy as well."

Shares of oil exploration companies surged with ONGC advancing 1.75% and Oil India gaining more than 3%.

Jani said investors should have limited exposure towards these stocks given the uncertainty surrounding them, but advised investing in IOC given the high dividend yield offered by the stock.

The three OMCs incurred cumulative losses of ₹18,622 crore between April and December 2022, as per the Petroleum Ministry.

While the fourth quarter of fiscal 2023 may see OMCs' marketing margins expand which may help trim their losses, the recovery in margins may be short-lived, said analysts.

Crude oil prices are like a double-edged sword, said analysts. An increase in prices puts pressure on OMCs to raise the prices of petroleum products, putting an upward risk on the inflation print.

Not raising the rates of petroleum products increases the subsidy burden on OMCs even as fuel prices are deregulated and OMCs are permitted to revise prices on a daily basis.

Further, a depreciating rupee against the US dollar also inflates the country's import bill. India imports over 80% of its oil needs and has been aiming to lower its dependency on fossil fuels.