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Shares of oil marketing companies, including HPCL, BPCL, and IOC, gained 2% each on Tuesday after the government announced the second petrol and diesel price hikes in less than a week, increasing prices by around 90 paise per litre.
The latest hike follows the government's increase in fuel prices by up to Rs 3 per litre on Friday. After the fresh hike, the petrol price in Delhi now stands at Rs 98.64 a litre, up from Rs 97.77 per litre in Delhi. Diesel now costs Rs 91.58 a litre against a previous price of Rs 90.67, as per a news report by PTI.
Also Read | Petrol, diesel prices hiked for second time in a week; rates increased by nearly 90 paise
Kolkata saw the sharpest increase in petrol prices among the four metros, with rates jumping 96 paise to Rs 109.70 per litre. Diesel prices in the city also rose by 94 paise, reaching Rs 96.07 per litre. In Mumbai, petrol prices were increased by 91 paise while in Chennai, petrol prices went up by 82 paise.
The back-to-back price hike will likely provide some relief to the OMCs who have been facing mounting financial pressure as global crude prices remain elevated due to disruption caused by the ongoing conflict in West Asia, and the closure of the Strait of Hormuz, a narrow 33-kilometre waterway connecting the Persian Gulf with the Gulf of Oman that handles over 20% of the world’s daily oil and gas shipments.
After crossing the crucial $100 per barrel mark in March, oil prices have mostly sustained above the level this year so far. On Tuesday morning, Brent crude was trading above $110 per barrel while WTI Crude was hovering near $108 per barrel.
Are the latest fuel price hikes enough?
Nomura in a report released after the previous price hike had pointed out that a mere Rs 3 increase is significantly lower than the current under recoveries on a blended basis. The analysts had however noted that it could be the first in a series of fuel price increases, similar to what was seen during the Russia-Ukraine war in 2022.
“In the current situation, fuel price hikes were delayed for more than two months due to elections, with the government now opting for a one-time INR3/litre increase. If crude prices stay high, this could be the start of further gradual hikes to support OMC margins,” Nomura said, adding that the OMCs are trading at a premium to the valuations seen during the early period of the Russia-Ukraine war.
Which OMC is better placed now?
Given the strong diesel and ATF cracks, and least exposure to fuel marketing (as a proportion of refining throughput), Nomura believes that IOC will likely be best placed in the current situation. "We believe that high oil prices are here to stay at least in the medium term, and the government may not be able to pass on increased costs to end users to avoid the fallout from higher inflation. Also, the Rs 10/litre excise duty cuts taken in March may eventually need to be reversed once oil prices start moderating, implying marketing margins may not return to pre-war levels any time soon," it highlighted.
Nomura believes the upcoming refining capacities of IOC may help the company outperform other OMC peers given the strong refining margins outlook and surplus petrol/diesel output from its own refineries, compared to its marketing volumes.
Also read | IOC Q4 results: Cons PAT surges 78% YoY to Rs 14,458 crore, revenue rises 7%
The international brokerage has ‘Buy’ calls on the shares of IOC and BPCL, but a ‘Neutral’ call on HPCL. At the current run rate of integrated losses, Nomura expects HPCL to be the most impacted because of the higher losses it is currently making due to its leveraged marketing exposure. “We estimate ILC, BPCL and HPCL to completely run down their balance sheet equity over the next 10,4 and 2 years, respectively, if current run rate of losses sustain,” it added.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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