OMC Stocks Slip Despite Fuel Price Increase Amid Elevated Crude Oil Costs

Shares of major state-owned oil marketing companies fell in early trade on Friday, even after petrol and diesel prices were raised by more than ₹3 per litre across the country.

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Market participants remained cautious as the latest increase in retail fuel prices was viewed as insufficient to fully offset mounting losses faced by fuel retailers amid persistently high international crude oil prices.

Bharat Petroleum Corporation Limited (BPCL) declined 2.02% to ₹289.05 during morning trade. Hindustan Petroleum Corporation Limited (HPCL) fell 2.17% to ₹369.35, while Indian Oil Corporation Limited (IOC) slipped 1.65% to ₹137.94.

The decline in oil marketing company (OMC) stocks came a day after state-run fuel retailers revised petrol and diesel prices upward for the first time in more than four years.

Fuel Prices Raised After Long Freeze

Oil marketing companies increased petrol and diesel prices by over ₹3 per litre across major cities on May 15, following a prolonged period of unchanged retail prices despite rising global crude oil costs.

The latest amendment follows from continued margin pressures for public sector fuel retailers arising out of high crude prices caused by political instability in West Asia.

Almost 85% of India's crude needs are met through foreign sources, rendering Indian fuel retailers extremely susceptible to any disruptions in international crude supply chains and price fluctuations.

International crude oil benchmarks are currently trading near $107 per barrel after recent fluctuations triggered by supply concerns surrounding the Strait of Hormuz and tensions involving the U.S., Iran, and Israel. At one stage, crude oil prices had crossed $120 per barrel before easing slightly.

Under-Recoveries Continue To Pressure OMCs

Union Petroleum Minister Hardeep Singh Puri said earlier this week at the CII Annual Summit that Indian oil companies are currently incurring losses of nearly ₹1,000 crore per day.

According to the minister, cumulative under-recoveries could reach nearly ₹1,98,000 crore if elevated crude oil prices persist.

Brokerage firm Kotak Institutional Equities had estimated in a report last month that refiners and fuel retailers were facing an additional financial burden of around ₹27,000 crore every month due to high crude prices.

Despite the latest increase in retail fuel prices, investors appeared concerned that the revision may not be enough to fully compensate for the rise in input costs.

Global Energy Risks Remain In Focus

The price of crude oil has been highly fluctuating recently because of geopolitical issues and supply chain fears in major shipping corridors.

Strait of Hormuz, one of the most important shipping corridors for oil globally, continues to be monitored amid the current war in the West Asian region.

Fuel prices in India had been fairly stable for many years even when there was considerable volatility in international oil prices. This current adjustment will help ease some pressure on OMCs, though they continue to face challenges owing to high imports and global energy market uncertainties.