Shares of Indian upstream oil companies fell up to 3 per cent on Monday, April 13, as crude oil prices topped the $100 per barrel mark after the failure of ceasefire talks between the United States and Iran in Islamabad over the weekend to reach an agreement.
US President Donald Trump on Sunday said the US Navy would start blockading the Strait of Hormuz, raising geopolitical tensions.
At 11:05 AM, shares of Reliance Industries were down 2.24 per cent at 1,319.90 levels, while shares of state-owned Oil and Natural Gas Corporation (ONGC) fell nearly 1 per cent to ₹284 on the NSE.
Gas Authority of India (GAIL) stock also slipped 1.2 per cent to ₹152.23. However, shares of Oil India (OIL), a state-owned exploration & production company in the upstream sector, rose nearly 2 per cent to ₹479.30.
In comparison, the NSE Nifty50 index was quoting at 23,625.20 levels, down by 425.40 points or 1.77 per cent. The Nifty Oil & Gas index fell 270 points or 2.41 per cent to 10,923.20 levels.
This comes after the crude oil prices surged up to $105 per barrel. Last checked, the global benchmark Brent Crude was up by 7.75 per cent to $102.18 per barrel, and US WTI Crude was up 8.5 per cent at $104.74 per barrel.
Gaurav Sharma, AVP and head of research for equity at Globe Capital, said upstream companies generally benefit from rising crude oil prices. That explains why Oil India is slightly up, while ONGC is down. Overall, higher crude prices are positive for these companies.
Additionally, the government has sharply raised export duties on diesel and aviation turbine fuel with immediate effect, more than doubling the windfall tax on diesel from ₹21.5 per litre to ₹55.5 per litre. The levy on aviation turbine fuel (ATF) has been increased from ₹29.5 per litre to ₹42 per litre, while export duty on petrol remains unchanged at nil, according to a notification by the Finance Ministry on Saturday, April 11.
According to a report by Nomura, the increased windfall tax on diesel and ATF exports should benefit OMCs. However, the brokerage believes that the windfall tax does not apply to Reliance’s SEZ (Special Economic Zone) refinery, which is dedicated to the export of oil products.
As such, the impact on Reliance would be partly limited to only the domestic-focused refinery. We expect Reliance to sell diesel and ATF produced in the domestic refinery to be transferred to OMCs at prices adjusted for the windfall tax.
The brokerage said the higher windfall tax on diesel and ATF sales is likely to significantly impact Numaligarh Refinery (NRL), as it primarily sells its products to OMCs such as BPCL, along with the recent excise duty cut announced on March 27.
Oil India Limited, which holds around a 70 per cent stake in NRL, derives nearly 35 per cent of its valuation from the refinery, implying that the windfall tax impact will indirectly weigh on Oil India’s earnings outlook. (Disclaimer: The views and investment tips expressed by the analysts in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.)
