Oil marketing companies gain on drop in crude oil price, BPCL hits new high

BPCL and HPCL surged 5 per cent each in the intra-day trade today, while IOC gained 3 per cent on the BSE in an otherwise weak market.

Shares of oil marketing companies (OMCs) were trading higher in an otherwise weak market on Thursday owing to fall in crude oil prices and on expectations of government’s plans to privatize Bharat Petroleum Corporation (BPCL).

On the BSE, BPCL rallied 5 per cent intra-day to trade at Rs 517, while Hindustan Petroleum Corporation (HPCL), too, surged 5 per cent to Rs 325 to trade close to its 52-week high of Rs 333, touched on June 3, 2019 in the intra-day deal. Similarly, Indian Oil Corporation (IOC) was up 3 per cent at Rs 153. In comparison, the S&P BSE Sensex was down 0.43 per cent at 38,141 points at 11:40 am.

Oil prices fell more than 2 per cent on Wednesday after official data showed a rise in US crude inventories. The rise underlined worries about an oversupplied market, in addition to depression in global financial markets due to weak economic scenario in the United States, Reuters reported.

In the past one month, market price of BPCL (up 45 per cent), IOCL (up 30 per cent) and HPCL (up 27 per cent) have outperformed the benchmark index, which added 4.5 per cent rise during the same period.

Analysts at Elara Capital believe factors, such as non- Organization of the Petroleum Exporting Countries (OPEC) oil supply growth outpacing global demand meaningfully in 2019, rising gross refining margin (GRM) on upcoming International Marine Organization (IMO) regulation, above average H1FY20 retail margin and improving domestic oil demand growth, will play in favour of OMC.

“IMO will implement a ban on marine fuels that emit high levels of sulphur oxide by January 2020. Our discussions with industry experts reveal diesel demand would rise by 1.0-2.0mmbpd, as a result. This diesel demand surge offers OMC an opportunity to improve refining margin,” the brokerage firm said in a sector update.

BPCL, meanwhile, is trading above the brokerage's target price of Rs 507 per share. The firm also maintains ‘buy’ rating on HPCL and IOC with 12 month target price of Rs 415 and Rs 182, respectively.