Oil marketing stocks tumbles despite hike in price

Oil marketing stocks slips on Wednesday as investors liquidated their long positions in these stocks even after the announcement of the oil price hike. The BSE Oil & Gas index shed 353 points or 3.39 per cent from the previous day’s close, while the Sensex was down 2.81 per cent.

Mid-session
Until mid-session though, the BSE Oil & Gas index was among the best performing indices as it was up by almost two per cent. As soon as the Government announced the fuel price hike the share prices of oil marketing firms surged more than 5 per cent.

Public sector oil marketing firms such as BPCL, HPCL and IOC witnessed the highest rise. At their intra-day highs, (immediately after the Government announcement), BPCL was trading at Rs 371, IOC at Rs 452 and HPCL at Rs 256.

Private oil firms, both in production and refining, also surged till a little past mid session, in anticipation of the price rise. Cairn India, Essar Oil, Reliance Industries and Reliance Petroleum saw a lot of buying in the early part of the day. “The market had been anticipating an increase in fuel prices which is why we have been seeing a run up in these stocks in the past few days until today afternoon”, said the head of research at a stock broking firm.

However, an hour or so after the Government announcement, oil and gas stocks were seen headed southward. At close of trading, IOC was down 3.61 per cent at Rs 418.2. BPCL shed 7.84 per cent to close at Rs 324.05. HPCL fell three per cent, Aban Offshore tumbled by Rs168.75 to end the day at Rs 3,503.05, Reliance Industries fell Rs 99.6 to close at Rs 2307.2 and Essar Oil closed down 7.24 per cent at Rs 231.20.

“There was a lot of build up in these stocks in the last 10 days in anticipation of the fuel price hike. After the announcement these investors were booking their profits at higher levels. The overall market sentiment was negative, so that investors who wanted to book profits sold off their positions in these stocks”, said Mr Rohit Nagraj, an Oil & Gas analyst at Angel Broking.

Outlook
Market men say that after the announcement brokers had been advising their clients to reduce their long positions in the oil marketing stocks. “Even though the prices have been hiked, these companies will still be running at a loss. With the price rise only the extent of the losses will be reduced,” said Mr Alex Mathew, Head Research Centre, Geojit Financial Services.

People were expecting something for the private oil marketing companies as well, but nothing was announced today which is why the share prices of these stocks also dipped, said analysts.

ONGC was the sole gainer among the stocks in this sector, as well as the in Sensex. The stock was trading positive the entire day and closed at Rs 887.05, gaining 5.31 per cent from its previous close. It touched an intra-day high of Rs 912. “The package announced by the Government is between neutral and positive for ONGC. The subsidy burden of the company will reduce now”, said Mr Sanjay Someshwar, a sub-broker with Ventura Securities.

The fuel price hike, though positive for oil marketing companies, is not a long lasting solution unless crude oil prices come down substantially say analysts. “These companies still continue to depend on oil bonds and upstream companies for their profitability. Also, if crude oil prices come down, a rollback of prices is also not ruled out”, said Mr Dikshit Mittal Research analyst, Religare Securities.