Investors Skeptical as Oil Stocks Plummet Following Modest Fuel Price Hike
The Rs 3 relief that wasn't: Why investors are dumping oil stocks after long-awaited petrol, diesel price hike
The Economic Times
Image: The Economic Times
India's state-run oil marketing companies (OMCs) raised petrol and diesel prices by ₹3 per litre, the first increase since 2022. However, shares of HPCL and BPCL fell by 3% as investors doubted the hike's sufficiency to offset significant losses amid soaring crude oil prices, which currently exceed $100 per barrel.
- 01ICRA estimates OMCs incur losses of about ₹500 crore daily at crude prices of $105-110 per barrel, despite the price hike.
- 02Emkay Global's Seshadri Sen indicated that a ₹10 per litre increase is needed to cover approximately 50% of current under-recoveries.
- 03Brent crude prices have surged from nearly $69 in February to around $107, driven by geopolitical tensions in the Middle East.
- 04Yes Bank Chief Economist Indranil Pan warned that a 10% increase in fuel prices could raise the Consumer Price Index (CPI) by 48 basis points.
- 05Experts suggest the government should implement more significant price hikes now, as there are no immediate elections.
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India's oil marketing companies (OMCs) have increased petrol and diesel prices by ₹3 per litre, marking the first price adjustment since 2022. Despite this, shares of Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL) fell by 3%, as investors expressed skepticism regarding the hike's ability to mitigate substantial losses. According to ICRA, OMCs are losing approximately ₹500 crore daily at current crude oil prices, which are hovering around $107 per barrel. Emkay Global's Seshadri Sen noted that a ₹10 per litre increase would only cover about half of the under-recoveries, which are estimated at ₹17-18 per litre. The rise in crude prices, fueled by geopolitical tensions, is expected to have a cascading effect on inflation, with a 10% increase in fuel prices potentially raising the Consumer Price Index (CPI) by 48 basis points. Analysts urge the government to consider more significant price hikes to stabilize OMCs and restore investor confidence, especially as the current political climate allows for such measures without electoral repercussions.
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The modest fuel price hike will not substantially alleviate the financial strain on OMCs, potentially leading to further price increases for consumers and contributing to inflation.
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