OMC stocks extend fall; BPCL, HPCL, IOCL down up to 4%; here's why

Thus far in March, the stock price of HPCL has slipped 22 per cent, while BPCL and IOCL were down 18 per cent and 14 per cent, respectively amid rising crude oil prices.

Oil marketing companies (OMCs) shares today

 

Shares of state-owned oil marketing companies (OMCs) continued to remain under pressure, falling another 4 per cent on the BSE in Thursday’s intra-day trade due to rising crude oil prices.

 

Bharat Petroleum Corporation (BPCL) (₹306.80), Hindustan Petroleum Corporation (HPCL) (₹353) and Indian Oil Corporation (IOCL) (₹150) were down 4 per cent each in intra-day trade. At 09:32 AM; these stocks were down in the range of 1 per cent to 3 per cent, as compared to a 0.50 per cent rise in the BSE Sensex.

 

Meanwhile, thus far in March, the stock price of HPCL has slipped 22 per cent, while BPCL and IOCL were down 18 per cent and 14 per cent, respectively. In comparison, the benchmark index was down 10 per cent. Currently, OMCs stocks are 9 per cent to 20 per cent away from their respective 52-week lows.   

 

     

Why are OMCs underperforming the market?

 

Oil prices extended gains on Monday as the US-Israeli war against Iran entered a third week, putting oil infrastructure at risk and keeping the Strait of Hormuz shut, the biggest disruption to global supplies ever. Brent crude futures jumped $2.01, or 1.95 per cent, to $105.15 a barrel by 2338 GMT after settling $2.68 higher on Friday, Reuters reported.

 

Meanwhile, the International Energy Agency on Sunday said more than 400 million barrels of oil reserves will begin flowing to the market soon, a record draw aimed at combating price spikes caused by West Asia war.

 

The impact on OMCs such as Indian Oil, BPCL, and HPCL largely depends on government pricing policies. If retail fuel prices remain capped, margins may come under pressure. However, if price increases are passed on to consumers, margins tend to remain stable, according to analysts.

 

The escalation of the US -Iran conflict has triggered a sharp energy shock, disrupting liquefied natural gas (LNG) flows through the Strait of Hormuz and pushing Brent toward the $100/bbl threshold, exposing India’s gas supply vulnerability, said analysts at Elara Capital. 

OMCs are the hardest hit amid high-crude prices. Higher GRMs can partly offset retail margin collapse and rising LPG loss. At current Brent of USD 100/bbl, earnings could drop sharply ~90-190% absent retail price hike, tax cut, or higher LPG subsidy. Among OMCs, HPCL & BPCL are most exposed due to their higher retail volume relative to refining capacity. IOCL is better placed among OMCs due to higher refining share, but still vulnerable if crude stayed high and retail price unchanged, said the brokerage firm.

 

For BPCL, HPCL, and IOCL, GRM would increase $0.5/bbl for every $1/bbl rise in crude oil and could partly offset gasoline/diesel/LPG losses, it added.

 

India’s growing reliance on imported oil and gas remains a critical energy security challenge. Crude oil import, now at around 88 per cent, poses a key challenge, increasing exposure to global price volatility and supply disruptions. Domestic gas production is projected to grow only modestly by 2030, necessitating a sharp rise in LNG imports, further deepening external reliance, IOCL said in its FY25 annual report. 

 

Meanwhile, in a sustained high crude oil price scenario, there could be a material increase in the gross under-recoveries, as has been the case in the past, and this could consequently raise the working capital requirements and short-term debt levels of OMCs, thereby negatively impacting  their profitability. Additionally, there have been instances in the past when in an elevated crude oil price environment, the GoI had intervened in the pricing of motor spirit and high speed diesel (HSD) that negatively impacted the marketing profitability of the OMCs.  =====================================  Disclaimer: View and outlook shared on the stock belong to the respective brokerages and are not endorsed by Business Standard. Readers' discretion is advised.