OMC stocks slip on fuel price-cut reports

Stocks of oil marketing companies (OMCs) lost some value on Monday because of media reports that prices of petrol and diesel may be cut to bring relief to customers. In the fortnight ended December 8, shares of Bharat Petroleum, Hindustan Petroleum and Indian Oil Corporation rallied 15-20% on the back of benign crude oil prices and because of the convincing wins by the ruling BJP in three state elections. Moreover, the Street was reassured as petrol and diesel prices have remained stagnant for the past 18 months.

Media reports on Monday suggested the government is considering a move to bring down pump prices of auto fuels, though the timelines have not yet been finalised. Analysts at Emkay noted last week that the OMC stocks had rallied thanks to the BJP’s wins in key states. “The markets now do not seem to anticipate populist measures, retail auto fuel price-cuts being one of these,” analysts had observed.However, they did see the possibility of retail price cuts before the general elections and believe the volatility in oil prices could continue. “The price cuts could be for a brief period,” analysts said.In an earlier estimate, they concluded that while pump prices of auto fuels may be cut after the state elections, the system-wide impact from even a cut of Rs 5/litre would still be under Rs 26,000 crore in FY24. Analysts at HSBC recently wrote that they expect pricing freedom on marketing following the elections, allowing OMCs to reset pump prices. “We expect the government to allow them to earn profits as they are likely to help drive the energy transition while needing to manage their budgets,” they added.