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Stocks of state-owned oil marketing companies are seen opening up this week after they announced a hike in diesel price on Friday but the continuation of the positive trend will depend on crude prices and rupee-dollar movement. After giving diesel price hike a miss in April, Indian Oil Corp Ltd yesterday announced a 90-paise-per-ltr hike in the retail price of diesel. The price hike is excluding value added tax. Other two companies--Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd--usually follow suit. The move is also positive for upstream companies Oil and Natural Gas Corp Ltd and Oil India Ltd, which have to bear 40% of the subsidy burden of the oil marketing companies.
Following the price hike, revenue losses will decline below 3 rupees a litre, which is a remarkable improvement from the 10 rupees a litre these companies were losing on sales of a litre of diesel in January. Decline in crude prices and recovery in the rupee has aided this trend. The hike comes at a time when the union government is facing political heat because of corruption-related issues. It is a bigger positive for these because of the timing. Nobody was hopeful that the companies will be able to do it. Some market participants believe the companies as well as the government will find it tough to resist a call for rollback given the political situation.
If that happens these stocks could witness volatile trade this week. The Indian basket of crude continues to remain around $100 a barrel mark while rupee is holding stable just over the 54 for a dollar level. Increase in crude prices or a significant movement in the rupee will continue to dictate the trend in movement of stocks of oil marketing companies.
