Why IOC, BPCL, and HPCL could each gain ₹20,000cr
What's the story
India's oil marketing companies (OMCs) could see a major boost in profitability if the current trend of falling crude oil prices continues. Probal Sen is a senior research analyst covering Indian Oil & Gas Sector, Indian Agrichem Sector, and Institutional Equities at ICICI Securities. He estimated that each of the top three OMCs: Indian Oil, Bharat Petroleum, and Hindustan Petroleum Corporation, could see an annual EBITDA increase of over ₹20,000 crore with $10 drop in actual product prices.
Market impact
Market yet to fully factor in oil price drop
The recent fall in oil prices, which have dropped by over 15% in just the last six sessions, has created a favorable environment for IOC, BPCL, and HPCL. However, Sen thinks that the market has not yet fully accounted for these gains as some important aspects of the geopolitical agreement behind this decline are still being finalized.
Financial relief
LPG losses could reduce significantly
Sen also highlighted the potential reduction in LPG losses as another major positive. He noted that these losses had crossed ₹650 per cylinder in early May, potentially leading to a quarterly loss of nearly ₹30,000 crore. However, with energy prices cooling and supplies improving, these losses could start to ease.
Industry advantage
Gas companies could benefit from improved global LNG supplies
Sen said that gas companies could benefit from improved global LNG supplies. He expects Qatar's return to the LNG market will bring down procurement costs, especially as long-term contracts linked to Brent crude are likely to be cheaper than spot purchases. "Directionally it's a massive positive," he said, adding that global LNG markets are expected to remain well supplied over the next three to five years.