Synopsis: The shares of oil marketing companies surged up to 6 percent after multiple fuel price hikes and a sharp decline in crude oil prices improved expectations of stronger marketing margins and profitability.
Oil marketing company stocks rallied sharply on Monday after state-run fuel retailers increased petrol and diesel prices for the fourth time in 11 days. The latest fuel price hike boosted investor sentiment amid expectations of improving marketing margins and stronger earnings visibility for OMCs.
The rally was further supported by a sharp correction in global crude oil prices following progress in US-Iran negotiations. Lower crude prices are expected to reduce input costs for fuel retailers, while higher domestic fuel prices could improve refining and fuel marketing profitability in the coming quarters.
Stocks in focus: Among oil marketing companies, Hindustan Petroleum Corporation surged 6 percent, while Bharat Petroleum Corporation and Indian Oil Corporation gained nearly 4 percent each, as investors turned optimistic on improving marketing margins following multiple fuel price hikes and easing crude oil prices. Here are the factors that might be fueling the rally in this stock
Fuel Price Hikes Support OMC Stocks: Oil marketing company stocks gained after petrol and diesel prices were raised by an average of Rs 2.7 per litre on Monday. This marked the fourth fuel price hike in 11 days, improving margin expectations for Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation.
The fuel price hikes are aimed at reducing losses from elevated crude oil prices following the conflict in Iran. With crude oil prices sustaining above $105 per barrel, OMCs were absorbing high costs, while Petroleum Minister Hardeep Singh Puri indicated that daily losses were nearing Rs 1,000 crore.
Fuel Price Hikes Near Rs 7.5 Per Litre: Petrol and diesel prices have cumulatively risen by nearly Rs 7.5 per litre since May 15 after the end of a prolonged price freeze. The repeated hikes have raised concerns over inflation and transportation costs, while also improving revenue visibility for oil marketing companies.
PSU OMCs Gain From Higher Fuel Prices: State-run fuel retailers, including Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation, together control around 90 percent of India’s fuel retail market, allowing them to directly benefit from higher retail fuel prices and stronger marketing margins.
Falling Crude Oil Prices Improve Margin Outlook: Global crude oil prices declined sharply on Monday after progress in US-Iran negotiations improved hopes of easing supply disruptions. WTI crude fell 5.40 percent to $91.38 per barrel, while Brent crude dropped 5.09 percent to $98.23 per barrel, supporting margin outlook for oil marketing companies.
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