Amidst rising crude oil prices, should you Sell or Hold BPCL, HPCL, IOCL shares?
Crude price rises has been rising with Brent crude crossing $91 a barrel mark. BPCL was largest loser among Nifty- 50 stocks on Friday. HPCL , BPCL, IOCL share prices have corrected up to 20% from February highs. Should you sell or Hold the stocks?
Crude price rises has been rising with Brent crude crossing $91 a barrel mark . This has added to volatility in Bharat Petroleum Corporation (BPCL ) , Hindustan Petroleum Corporation , Indian Oil Corporation (IOCL) share prices. The BPCL , HPCL , IOCL share prices that have risen up to 120% over last one year, however have remained volatile in the recent past. The stocks of these Oil Marketing Companies (OMCs) in fact are down up to 20% since February highs. Also BPCL share price was among the largest losers in Nifty-50 stocks on Friday.
Rising Crude prices add to caution
The volatility in Crude prices has remained one of the factors that has led to the volatility in share prices of OMCs as BPCL , HPCL and IOCL. The Brent Crude price that had dipped to $77 a barrel in February has risen to around $91 a barrel now adding to concerns. The higher crude prices while on one hand can put pressure on marketing margins , they also increased the working capital requirements of these companies since the OMCs as BPCL, HPCL IOC, need to spend more on import of crude oil.
The marketing margins refer to the margins OMCs earn on selling fuel in the retail outlets. Since the OMCs have recently cut prices of auto fuels recently, the concerns have remained elevated.
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The analysts attribute the rise in Crude oil prices recently to growing attacks on Russian energy installations and geopolitical dangers in the Middle East leading oil prices to rise past $ 90 a barrel levels, despite slightly improved macrodata.
Marketing margins under pressure
Even though oil prices have been rising, the retail petrol and diesel prices have not seen any change during the recent past, analysts at Antique Stock Broking estimate that the sme may have led to the marketing margin declining and dipping to negative zone (i.e a loss of ₹0.1 per litre)
Since the analysts at Antique Stock Broking don't anticipate retail prices to rise until after the elections, any change in oil prices will result in an equivalent adjustment to the marketing margin said analysts.
The price revisions are not likely to resume till elections are over and if the current situation in Crude prices persists or worsens, 1QFY25 would turn out to be a very weak quarter (for BPCL, HPCL and IOCL), added analysts at Antique Stock Broking.
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Nonetheless, the resumption of retail pricing adjustments post the elections would lead to recovery in marketing margins over time and analysts say that post elections as retail price adjustments resume, the marketing margins will also improve. The marketing margin will rise above ₹4.5 a litre post elections said analysts at Antique who say that the correction in stock prices of HPCL , BPCL , IOC should be used as an opportunity to accumulate these stocks
Refining margins outlook still stable
The refining margins too have remained volatile, nevertheless the benchmark Singapore GRMs still have averaged $ 6 a barrel. Analysts say that the demand outlook is stable and new refining capacity additions have lagged demand and hence they do npot see much risks to refining margins
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
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