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Sunday, November 30, 2008

Oil Cos Would Earn More Profits - HPCL, BPCL, IOCL could be beneficiary

OIL marketing companies will earn more profits, Rs 14.89/litre on petrol and Rs 3.03 per litre on diesel, since December 1 due to falling oil prices in international markets.

OIL marketing companies will earn more profits, Rs 14.89/litre on petrol and Rs 3.03 per litre on diesel, since December 1 due to falling oil prices in international markets. This is Rs 6.74 per litre more on diesel and Rs 2.38 per litre more on petrol than what they earned last month.

Cos will earn Rs 14.89/ litre on petrol, Rs 3.03/ litre on diesel from December 1

But there will be no immediate change in consumer prices of the two fuels. Had oil marketing companies passed on the benefit of the sharp fall in global oil prices to consumers, petrol would have cost them Rs 35.73 a litre, price last seen in June 2004. Similarly, diesel would have cost Rs 31.83 a litre, prevalent in February. But retail prices of controlled items such as petrol and diesel in Delhi are Rs 50.62 per litre and Rs 34.86 per litre respectively. Prices of four ‘sensitive’ petroleum products (petrol, diesel, kerosene sold at ration shops and cooking gas) are controlled by the government while prices of other petroleum products are market determined. “Profit margins on auto fuel sales has been positive for a month. But now margins have increased significantly. This calls for a roll back of petrol and diesel prices,” an official who didn’t wish to be identified said.

In June, when the average price of crude oil import touched $122/barrel, the government increased petrol prices by Rs 5 a litre, diesel by Rs 3 a litre and cooking gas by Rs 50 per cylinder. A petroleum ministry official said there was no final decision on the price revision as yet but cooking gas prices could be reduced only marginally as public sector oil companies are still losing Rs 143 on every cylinder.

The government is under pressure from the opposition parties to cut petrol and diesel prices but it is restrained by the election codes.

OUR VIEW - One may consider buying oil marketing companies shares since:
** It is clear that crude oil prices would remain range bound from $50 to $70 - $ 75 in world markets

** In the month of June 2008, when average crude oil import price touched $122 a barrel, the price of petrol & diesel were raised, if we compare this average price then (with crude at $ 143 per barrel), and present crude oil at below $50, oil companies would defenitely be making profits even if government decides to reduce fuel prices marginally.

** This would make positive impact on all oil marketing companies stocks making it look good for mid term investments.

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