Oil stocks largely traded positive on Tuesday with stocks of downstream companies barring Reliance Industries Ltd (RIL) rising by up to 1.5 percent. The oil stocks came in focus as the downtrend in the international crude oil prices continued with benchmark Brent crude oil price slipping to $85/bbl and ahead of a key OPEC meet on October 5.
A CLSA note said the steep fall in crude prices has seen the integrated auto fuel margin for Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) rise to nearly their highest in a year. Combined with a return to above-normal LPG marketing margins, core profitability at spot levels suggests notable improvement, it added.
That said, the September quarter earnings of the state-owned downstream oil companies in India — IOC, BPCL and HPCL — will be marred by large inventory losses, a sharp quarter-on-quarter (QoQ) decline in gross refining margins (GRMs) and poor marketing profitability, the global brokerage said. Diversified conglomerate and index heavyweight RIL’s refining profit will likely also be hurt by windfall taxes, it added.
Meanwhile, India’s oil demand in August 2022 rose 16 percent YoY, sharply improving to above pre-Covid levels. However, supply-side pressures will continue to impact oil markets amid underproduction by OPEC+, the ban on Russian oil imports in Europe and the flagging US production and a halt in the release of strategic reserves.
CLSA has picked ONGC and OINL as its top ‘buys’ as they are pricing in Brent at sub-US$50/bbl while the government seems to be ensuring a post-windfall tax realisation of US$70-75/bbl.
ONGC has, for the first time, sold oil through a three-month local tender, commanding $5-8 per barrel more than existing rates under new rules that allow producers marketing freedom, a Reuters report said.
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