Correction in crude oil prices to aid OMC; ICICI Direct gives its recommendations on IOCL, BPCL, HPCL

Oil stocks: Even as crude oil prices are witnessing a receding trend and have hit levels below USD 80 per barrel, several analysts are of the view that the Oil Marketing Companies (OMC) such as Hindustan Petroleum Corporation Ltd (HPCL), Bharat Petroleum Corporation Ltd (BPCL), and Indian Oil Corporation Ltd (IOCL) will likely benefit from the decline. 

OMCs would incur one time inventory loss on Gross Refining Margin (GRM) front, which is a measure of profitability for the oil refining companies due to the impact of falling oil prices on existing inventory, ICICI Direct said in a report. The correction in prices would have an overall positive impact, it said. 

Moreover, profit on petrol will increase further and losses on diesel will narrow as a result of this. The performance of the marketing segment will improve significantly owing to lower losses on the diesel front, the brokerage further said.

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The impact will show on the books of the companies from the current quarter. As for upstream companies such as ONGC, the impact will be minimal on account of the windfall tax levied by the government.

ICICI Direct have maintained a hold rating on IOCL with a target price of Rs 85 per share. 

For BPCL, it has retained the hold rating with a target price of Rs 350 apiece.

ICICI Direct has retained a hold rating on HPCL with a target price of Rs 250 per share. 

According to Harshal Mehta, Research Analysts, ICICI Direct, the decline in crude prices was on account of weak demand in China, the European Union’s (EU) price cap on Russian oil, to uncertainty on the direction of the Federal Reserve’s rate hike. 

Rise in Covid-19 cases in China which led to stringent restrictions in the country also impacted the prices although they have started relaxing these restrictions to a certain limit. 

Individually, shares of HPCL gained over 2 per cent to touch a day’s level of Rs 237 per share, followed by IOCL shares up over 1 per cent to Rs 77.6 per share on the BSE intraday. While BPCL shares were up nearly 1 per cent to Rs 337.4 per share.

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