ONGC, Oil India shares rise but BPCL, Reliance, Indian Oil dip as Street undecided on windfall tax cut

Private player Reliance shares, meanwhile, were in the red post the cess cut announcement. The stock was trading 0.08 percent lower at Rs 2658.45. BPCL, on the other hand, too was in the negative territory, trading 1.84 percent lower at Rs 340.70.

The mixed trend in oil and gas stocks comes as the government has, for the third time, revised the windfall levy imposed on July 1. The cess is reviewed fortnightly, taking into consideration the global crude prices.

A windfall tax is a one-off tax imposed by a government on a company. When a company benefits from something that they are not responsible for, the financial gain that ensues is called windfall profits. Governments typically levy a one-time tax over and above the normal tax rates on such profits, which is called windfall tax.

The tax on domestically produced crude oil has been cut to Rs 13,000 per tonne from Rs 17,750 per tonne, effective today.

The government, however, has raised fuel export taxes despite only cutting them a little over two weeks ago. It has increased export taxes on jet fuel to Rs 2 per litre from zero and diesel to Rs 7 per litre from Rs 5, the Finance Ministry notification said.

The export tax was raised as margins rose, but the same on domestically produced oil was reduced as international oil prices slid to a six-month low.

India first imposed windfall profit taxes on July 1, joining a growing number of nations that taxes super normal profits of energy companies. But international oil prices have cooled since then, eroding the profit margins of both oil producers and refiners.

Global brokerage Morgan Stanely expects fuel prices to remain stable despite the correction in oil prices. It is of the view that integrated margins of fuel marketers have turned positive and that supply-side challenges in refining remain firmly in play, supporting the upcycle.

Globally, oil prices have dipped after two days of gain as market participants weighed worries about a global economic slowdown — that could dampen fuel demand — against expectations of tighter supplies toward year-end. Brent crude futures fell 0.4 percent to $96.23 a barrel this morning.

Industry sources have told CNBC-TV18 that the government is working on a principle to leave some healthy margins with both crude oil producers and refiners and taxing gains over and above that.