BSE Oil & Gas index zooms over 7%; HPCL jumps 14%, BPCL surges over 11%

Shares of oil and gas companies climbed 14% in intraday trade Tuesday as crude oil prices remained near their 18-year lows amid fears of destroyed demand due to the coronavirus pandemic (Covid -19).

At 12:40 p.m., the S&P BSE Oil & Gas index was trading around 7.5% at 9,907, with all components trading in green. Hindustan Petroleum Corporation traded 13.65 percent at Rs 191.05 each on BSE. It peaked at Rs 191.50 during the day. Likewise, Bharat Petroleum Corporation (BPCL) rose more than 11.5% to Rs 306.

In addition, GAIL, CGSB, IOC and IGL were up 8.5 to 6 percent. In comparison, the S&P BSE Sensex was evolving by around 3.5% at 29,432 levels.

Oil markets faced double whammy following coronavirus epidemic and price war between Saudi Arabia and Russia after OPEC and other producers failed to agree on deeper cuts to support oil prices in early March.

“A likely increase in oil production from Saudi Arabia and Russia compared to the first quarter of fiscal 2018 and a drop in demand are expected to result in significant oversupply in the oil market. The resulting oil is expected to significantly affect the profitability of CGSB, “said analysts at ICICI Securities.

As for the oil marketing companies (OMCs), the brokerage said they would face huge inventory losses in the March quarter and report losses. However, higher marketing margins should provide respite for the WTO, as the cost benefit has not been fully passed on to consumers.

“Although it is difficult to assess the exact impact of the current situation, the drop in demand for all kinds of fuels in the context of a coronavirus epidemic should have an impact on companies’ results at T4FY20E, FY21E. A drop in stock prices offers investors a buying opportunity, “wrote Mayur Matani, research analyst at ICICI Securities in a note co-authored with Amogh Deshpande.

The brokerage prefers city gas distribution companies (CGD) and selective OMCs. CGD companies are playing a structural role in increasing demand for gas, favorable government policies and the advantage of competitive prices over competing fuels, he noted.

It has a “buy” rating on Adani Gas, BPCL, Gujarat Gas, Gujarat State Petroleum Corporation (GSPL), HPCL, Indraprastha Gas (IGL), Mahanagar Gas (MGL) and Petronet LNG.

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