Shares of state-run oil marketing companies (OMCs) such as Hindustan Petroleum Corporation Limited (HPCL), Bharat Petroleum Corporation Limited (BPCL), and Indian Oil Corporation (IOCL) declined on Friday even after petrol and diesel prices were raised across the country for the first time in more than two years.
Despite state-run oil marketing companies increasing petrol and diesel prices, investor sentiment remained weak as the hike was seen as lower than market expectations amid the continued surge in global crude oil prices.
Shares of HPCL fell 2.65% to hit an intraday low of ₹367.10 on the BSE. BPCL declined 2% to ₹289.05, while IOCL slipped 0.6% to its day’s low of ₹139.35.
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The stocks of state-run oil marketing companies (OMCs) declined because the recent petrol and diesel price hike of ₹3/litre was lower than market expectations. This occurred amidst a continued surge in global crude oil prices, impacting investor sentiment.
The recent increase in petrol and diesel prices by approximately ₹3 per litre is due to the sharp rise in global energy prices following the conflict in West Asia. This hike was necessary as OMCs were facing significant losses due to unchanged retail rates despite elevated global crude oil prices.
Petrol and diesel prices were increased by around ₹3 per litre, marking the first revision in over two years. They remained unchanged since March 2024, and were last reduced by ₹2 per litre before the 2024 Lok Sabha elections, despite rising global crude oil prices.
State-owned oil marketing companies (OMCs) were absorbing significant losses, estimated at nearly ₹20 per litre on petrol and around ₹100 per litre on diesel sales. This was because domestic fuel prices were not revised despite sharp increases in global crude oil prices.
Rising global crude oil prices increase the cost of fuel for OMCs. Despite a recent price hike, the increase was seen as insufficient to cover these rising costs, leading to concerns about fuel marketing margins and negatively impacting OMC stock performance.
“The decision to increase the price of petrol and diesel by ₹3 a litre and CNG by ₹2 a kg indicates that the government is playing it safe through small increases, perhaps stage by stage, without triggering a sharp spike in cost-push inflation. This is a welcome step,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
Meanwhile, global crude oil prices continued to climb sharply, keeping concerns around fuel marketing margins elevated. Brent crude traded close to $107 per barrel, with futures gaining nearly 6% so far this week, while West Texas Intermediate crude remained above $102 per barrel.
Adding to market concerns, US President Donald Trump said in an interview with Fox News after meeting Chinese President Xi Jinping that he did not require the Strait of Hormuz to remain open, even as tensions surrounding the region continued to keep energy markets volatile.
OMCs were facing pressure from rising crude oil prices
The public sector fuel retailers increased petrol and diesel prices by around ₹3 per litre after maintaining unchanged retail rates despite elevated global crude oil prices over the past several months. Following the revision, petrol prices in Delhi rose to ₹97.77 per litre, while diesel prices increased to ₹90.67 per litre.
In Kolkata, petrol prices climbed to ₹108.74 per litre from ₹105.45 earlier, while diesel prices rose to ₹95.13 per litre. Chennai also witnessed an increase, with petrol prices reaching ₹103.67 per litre and diesel prices rising to ₹95.25 per litre.
The government said state-owned oil marketing companies had been absorbing significant losses because domestic fuel prices were not revised despite the sharp rise in global crude oil prices following the escalation of the West Asia conflict. According to official estimates, OMCs were losing nearly ₹20 per litre on petrol sales and around ₹100 per litre on diesel sales, though some industry estimates suggested diesel under-recoveries were lower.
Earlier this year, the finance ministry had reduced excise duty on petrol and diesel by ₹10 per litre on March 27 to help avoid an immediate spike in retail fuel prices.
The Centre had repeatedly highlighted that Indian consumers were shielded from the steep fuel price increases witnessed globally, even as neighbouring countries such as Pakistan, Nepal and Sri Lanka saw higher retail fuel rates.
Prices of regular petrol and diesel had remained unchanged since March 2024 and were last reduced by ₹2 per litre ahead of the 2024 Lok Sabha elections.
The latest fuel price hike also comes shortly after assembly elections concluded in Assam, Kerala, Tamil Nadu and West Bengal, where polling took place between April 9 and April 29.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
