Crude Oil Prices Below $50 per Barrel, Boosts Oil Marketing Companies

Strategic Insights -

The price of Brent crude oil has dropped to below $50 per barrel, a 30% decline from its year's high on May 6. This has led to lower current account deficit and inflation for fuel-importing countries like India. As a result, oil marketing companies (OMCs) such as Bharat Petroleum Corp. Ltd, Hindustan Petroleum Corp. Ltd, and Indian Oil Corp. Ltd have seen their shares outperform the benchmark Sensex. Lower crude prices have also resulted in reduced losses for OMCs on selling fuel below cost, known as under-recoveries. Moreover, the deregulation of diesel prices and the resulting fall in under-recoveries have led to lower debt and finance costs for OMCs.

Key Takeaways:

  • The price of Brent crude oil has dropped to $48.6 per barrel, a 30% decline from its year's high on May 6.
  • Lower crude prices have led to a lower current account deficit and inflation for fuel-importing countries like India.
  • Oil marketing companies such as Bharat Petroleum Corp. Ltd, Hindustan Petroleum Corp. Ltd, and Indian Oil Corp. Ltd have seen their shares outperform the benchmark Sensex.
  • The deregulation of diesel prices has resulted in a fall in under-recoveries, leading to lower debt and finance costs for OMCs.
  • The cumulative debt of OMCs dropped to Rs.82,500 crore in financial year 2015 from Rs.147,600 crore in financial year 2014.
  • Refining margins have been robust until the recent past, averaging at $8.4 per barrel in the March quarter and $8 per barrel in the June quarter.
  • However, analysts warn that the shares of OMCs have already factored in most of the positives, and a sharp decline below current levels will be necessary for further gains.
  • The near-term outlook for OMCs is uncertain, with refining margins having slipped this quarter.

Statistics:

  • Brent crude oil price: $48.6 per barrel (down 30% from year's high on May 6)
  • Cumulative debt of OMCs: Rs.82,500 crore (down from Rs.147,600 crore in financial year 2014)
  • Refining margin: $8.4 per barrel (averaged in March quarter) and $8 per barrel (averaged in June quarter)
  • Singapore refining margin: $5.6 per barrel (as of current quarter)

Sources:

  • "Crude drops 30%, OMCs smile" by Mint (publication date unknown)
  • Motilal Oswal Securities Ltd
  • HT Syndication with permission from MINT. Copyright [c] HT Media Ltd. Provided by SyndiGate Media Inc. ( Syndigate.info )