ONGC, Oil India and other upstream stocks gain for 2nd day in row on withdrawal of windfall tax on oil production

Upstream companies’ stocks such as Oil and Natural Gas Corporation (ONGC), Oil India, Mangalore Refinery & Petrochemicals (MRPL), Chennai Petroleum Corporation among others extended gain for the second straight session on the exchanges during Wednesday’s trading session.

The rise in the oil exploration and production companies’ shares can mainly be attributed to the central government’s decision to withdraw the windfall tax on crude oil production on Tuesday.

The Indian stock market was shut on Tuesday, April 4, 2023, on account of Mahavir Jayanti.

Shares of ONGC, Oil India, MRPL, and Chennai Petro were up between 0.5-2.5 per cent intraday on the BSE. In the early morning trade, these counters gained as high as 5 per cent on the exchanges and were also on the radar of Zee Business research analysts with a ‘buy’ rating.

The government has cut the windfall profit tax on domestically produced crude oil to zero and halved the levy on the export of diesel to Rs 0.50 per litre in line with softening international oil prices, according to an official order.

The levy on crude oil produced by companies such as Oil and Natural Gas Corporation (ONGC) has been reduced to nil from Rs 3,500 per tonne (USD 5.8 per barrel), the order dated April 3 said.

Alongside, the government cut the tax on the export of diesel to Rs 0.50 per litre from Re 1, and the same on overseas shipments of ATF remains at nil.

The new tax rates come into effect from April 4, the order said.

Windfall tax is levied by the government on unexpectedly high profits earned by firms. The said tax was levied in July 2022 as high energy prices had led to high profits for oil producers.

Since then, windfall taxes for crude oil fell from Rs 23,250 per tonne in July 2022 to Rs 3,500 per tonne as of March 21 this year.

It’s a second positive news for the oil and gas companies like ONGC, Oil India, MRPL, and Chennai Petro, among others after OPEC+ and Saudi Arabia announced a surprise oil output cut earlier this week.

Saudi Arabia and other OPEC+ oil producers on Sunday announced further oil output cuts of around 1.16 million barrels per day, in a surprise move that analysts said would cause an immediate rise in prices and the United States called inadvisable, according to a Reuters report.

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