Oil stocks get a crude shock

Oil and Gas Index falls 2.06 per cent to 4461.96 on rising crude prices.

Stocks of upstream and oil marketing companies (OMCs) fell sharply on Wednesday owing to rising global crude oil prices. The BSE Oil and Gas Index fell 2.06 per cent to 4461.96 on Wednesday.

Brent prices rose to around $65.3 per barrel from $60.8 a fortnight ago, owing to concerns over supplies from Iran and Nigeria.

Higher crude prices are expected to result in OMCs once again facing a squeeze on marketing margins for diesel and petrol. Investor sentiment for upstream players such as ONGC was hurt owing to fears of a higher subsidy burden for the company.

Losses on diesel for OMCs, estimated at Rs 2 a litre prior to price discounts by refiners in the December quarter, are understood to have reached Rs 2.5-2.6 a litre in the past few days.

Also, in the case of petrol, marketing margins that were more or less zero are understood to have turned into a loss of about 50 paise a litre.

A partial cushion on margins for OMCs is expected from a pick-up in gross refining margins in the March quarter. Worried on the loss front, market players shunned oil stocks on Wednesday.

HPCL was the worst-affected declining 5.67 per cent to Rs 316.95 on Wednesday, while IOC slipped 0.53 per cent to Rs 552. BPCL fell 0.5 per cent to 432.7. ONGC, too, dipped 2.53 per cent to Rs 1193.

However, prior to Wednesday's fall, stocks in the oil sector had moved broadly in tune with the Sensex. Meanwhile, ONGC is expected to see its gross realisations jump 32 per cent y-o-y to $58.7 a barrel in Q3 of FY06.

However, the company's subsidy burden in the form of discounts on crude oil sales to PSU companies is expected to reach about $18 per barrel compared with $7.2 in Q2 FY06. Analysts expect the company to post an almost 10 per cent y-o-y growth in Q3 profits.

Oil marketing companies are likely to see reasonable profit growth in Q3.