Not only shares of oil marketing companies (OMCs) gained but even upstream companies (PSU) soared on Monday on hopes of zero diesel under-recovery to be a reality soon. HPCL , BPCL and IOC rallied 1.5-3 percent while ONGC and Oil India climbed 1.35 percent intraday.
Government today said the under-recovery on high speed diesel (HSD) applicable for first fortnight of September effective today will go down to Rs 0.08 per litre. This was Rs 1.78 per litre during second fortnight of August 2014.
Gradual increase in diesel price and stable oil prices in international market pushed the diesel under-recovery near zero.
During the same period, PDS kerosene and domestic LPG under-recoveries will be Rs 32.67 per litre (Rs 32.98 per litre in last fortnight) and Rs 427.82 per cylinder (Rs 447.87 per cylinder in last fortnight), respectively.
“OMCs effective September 1 2014, are now incurring combined daily under-recovery of about Rs 195 crore on the sale of diesel, PDS kerosene and domestic LPG. This is lower than Rs 230 crore daily under-recoveries during previous fortnight,” said the government.
It expects the under-recoveries for the financial year 2014-15 to be Rs 91,665 crore as against Rs 1, 39,869 crore in the 2013-14.
The calculation of this under-recovery was based on oil prices as on August 29 (Friday). International crude oil price of Indian Basket was at USD 100.97 a barrel (bbl) on August 29 as against USD 101.07/bbl on August 28. In rupee terms, the price of Indian Basket decreased to Rs 6,105.66 per barrel compared to Rs 6,111.70/barrel during the same period.
Meanwhile, Goldman Sachs continued to like buy-rated oil marketing companies HPCL and BPCL as it believes these offer good exposure to medium/long term oil demand growth in India, with strategic marketing assets at reasonable valuations.
Moreover, the brokerage sees significant upside of 78 percent-228 percent for OMCs under its blue-sky scenarios as divestment plays. Key risks according to the report are oil price spike and weak INR-USD exchange rate.
Last week, the diesel price was hiked by 50 paise per lire while petrol price cut by Rs 1.82 per lire.
Goldman Sachs said OMCs will need only one more price hike in October to curb diesel losses, assuming international oil prices and diesel cracks stay at current levels. This implies retail diesel will be market-priced in October 2014 — a major milestone for the sector, it added.
According to the report, high gasoline marketing margins is a positive sign for OMCs and augurs well for gasoil margins if actual deregulation occurs. Though the brokerage believes diesel is more politically sensitive than gasoline, given its usage, and has a broad impact on inflation, it expects greater clarity on its marketing margin trend in coming months after diesel losses fall to zero.
At 11:43 hours IST, Hindustan Petroleum Corporation rose 1.46 percent to Rs 464.80 and Indian Oil Corporation climbed 3.18 percent to Rs 370.25 while Bharat Petroleum Corporation was up 0.44 percent at Rs 697.40 on the BSE.
Upstream companies like ONGC and Oil India were up 0.7 percent (to Rs 438.25) and 0.9 percent (to Rs 621.35), respectively on hopes that the subsidy burden may be receded going forward.
Posted by Sunil Shankar Matkar