Oil Prices Plummet, Boosting Shares of Energy-Linked Companies

Strategic Insights -

The international crude oil price fell as much as 8% after Greece rejected a debt bailout and China's stock market woes sparked a deepening spiral of losses. This led to a surge in shares of oil marketing companies, local airlines, tyre firms, and paint companies in India. Lower crude oil prices will reduce under-recoveries of public sector oil marketing companies on domestic sales of liquefied petroleum gases and kerosene at government-controlled prices. The decline in jet fuel prices, which constitutes over 40% of an airline's operating costs, will ease the financial burden of cash-strapped carriers.

Key Takeaways:

  • Shares of Hindustan Petroleum Corp. Ltd, Bharat Petroleum Corp. Ltd, and Indian Oil Corp. Ltd rose by 2%, 1.3%, and 1.5% respectively, due to lower crude oil prices.
  • Airline shares such as Jet Airways (India) Ltd and SpiceJet Ltd rose by as much as 7.4% and 5.6% respectively, as falling crude prices may lead to another cut in jet fuel prices.
  • Domestic tyre and paint companies gained due to falling oil prices reducing their input costs. Tyre companies like Apollo Tyres Ltd, Ceat Ltd, and MRF Ltd rose by 3.8%, 2.2%, and 2% respectively.
  • Paint companies such as Asian Paints, Kansai Nerolac Paints Ltd, and Berger Paints India Ltd rose by 3.1%, 5.4%, and 3.7% respectively, due to reduced input costs.

Statistics:

  • International crude oil prices fell as much as 8%.
  • Oil marketing companies' under-recoveries on domestic sales of liquefied petroleum gases and kerosene are expected to decrease with lower crude oil prices.
  • Jet fuel constitutes over 40% of an airline's operating costs in India.
  • Shares of Jet Airways (India) Ltd rose by as much as 7.4% to Rs.331.80.
  • Shares of SpiceJet Ltd rose by as much as 5.6% to Rs.20.75.
  • Apollo Tyres Ltd rose 3.8% to Rs.178.70.
  • Ceat Ltd rose 2.2% to Rs.715.10.
  • MRF Ltd rose 2% to Rs.35,450.
  • Asian Paints rose 3.1% to Rs.808.

Sources:

  • Reuters
  • MINT (published by HT Syndication with permission)