Oil marketing companies (OMCs) stocks like Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL) will remain in focus after petrol and diesel prices were raised for the third time in 10 days. According to reports from Mint, petrol and diesel prices were increased by 87–91 paise per litre on Saturday, pushing the cumulative rise in retail fuel prices to nearly ₹5 per litre in less than 10 days. At the same time, compressed natural gas (CNG) prices were hiked by Re 1 per kg, marking the third increase in the past few days and taking the total increase to ₹4 per kg. The latest revision follows a ₹3 per litre increase in petrol and diesel prices on May 15 and another 90 paise per litre hike on May 19, ending a prolonged freeze in retail fuel prices. With the latest hike, petrol and diesel prices have risen to nearly ₹5 per litre since the state-owned oil marketing companies on May 15 ended the hiatus in rate revision, stoking concerns over inflationary pressures and higher transportation costs across the economy.
Following Saturday's increase, petrol prices across major cities have reached ₹99.51 per litre in Delhi, up from ₹98.64 earlier, while diesel costs ₹92.49 per litre compared to ₹91.58 previously. In Mumbai, petrol now costs ₹108.49 per litre and diesel ₹95.02, while Kolkata prices have risen to ₹110.64 and ₹97.02 respectively. Chennai sees petrol priced at ₹105.31 and diesel at ₹96.98. Prices vary significantly across states due to local taxes, with Thiruvananthapuram recording the highest petrol price at ₹112.64 and diesel at ₹101.55. These back-to-back increases are an attempt by the state-owned firms to pass on soaring international oil prices after a prolonged freeze in retail fuel prices, with the companies controlling 90 per cent of India's fuel market.
India has emerged as one of the few major economies to shield consumers from the full impact of the global oil shock triggered by the closure of the Strait of Hormuz, absorbing rising crude costs for 76 days before allowing a phased increase of under ₹5 per litre in petrol and diesel prices. As reported by CNBC-TV18, sources said this was likely 'the smallest material upward movement' among major economies outside the Gulf region. In contrast, several economies have witnessed fuel price spikes ranging from 20% to over 80% following the Hormuz disruption. The EU-27 average petrol price has risen to around ₹179 per litre, while prices in the UK, France and Germany remain well above ₹190 per litre. India's average petrol prices after the May 23 revisions range between ₹95 and ₹118 per litre, depending on state taxes, significantly lower than global counterparts. Madan Sabnavis, Chief Economist at Bank of Baroda, told Livemint that given the losses being incurred by OMCs, rise in petrol and diesel prices was inevitable, with more price hikes potentially following as the current increase may not be enough to fully compensate OMCs for their losses.
The consecutive hikes come after an extended pause in retail fuel price revisions and are being driven by higher global crude oil prices, narrowing refining margins, and a weaker rupee, all of which have significantly increased import costs. According to Mint, according to Sugandha Sachdeva, Founder of SS WealthStreet, the recent hikes are likely to provide some relief to OMC company and help protect refining and marketing margins after the company had been selling petrol, diesel, and LPG below cost for a prolonged period. Despite the hikes, oil marketing companies are still estimated to be incurring losses on fuel sales due to elevated crude prices. Prashant Vasisht, senior vice-president and co-group head, corporate ratings, ICRA, confirmed that OMCs are still incurring under-recoveries of ₹700 crore per day considering crude prices of $120-125 per barrel. However, the May 15 and May 19 price revisions are likely to have reduced OMC losses by around 25%, though substantial under-recoveries continue to be absorbed. Financial services firm Emkay Global has estimated that petrol and diesel prices could rise by as much as ₹10 per litre in the near term, as OMCs try to offset the impact of higher crude oil prices.
Crude oil prices have begun to cool off following the recent sharp rally, declining nearly 6% this month amid hopes of easing tensions between the US and Iran, along with expectations that a memorandum of understanding could eventually reopen the Strait of Hormuz and reduce supply disruptions. According to Sachdeva, as reported by Mint, any sustained decline in crude oil prices from current levels would significantly benefit OMC companies by reducing under-recoveries and improving profitability. However, Sourav Mitra, partner, oil and gas, Grant Thornton Bharat, cautioned that even if the West Asia situation stabilises, risks around the Strait of Hormuz could keep crude oil prices elevated above $90 per barrel. The recent price decline provides some relief to the sector after extended pressure from elevated crude prices. The back-to-back increases come after global crude oil prices surged more than 50 per cent since late February, following US-Israeli strikes on Iran and disruptions to shipments through the Strait of Hormuz, a critical global oil transit route.
Sachdeva recommends IOC as the top stock to buy, noting that the share price has formed a strong base around the ₹130 zone, which continues to act as a key long-term support area on monthly charts and also coincides with important moving averages. As reported by Mint, she expects potential upside towards ₹155 levels initially, while a decisive breakout above the same could open the path towards ₹167 from a medium- to long-term perspective. Mahesh M Ojha, VP Research & Business Development at Kantilal Chhaganlal Securities, believes all three OMCs delivered strong numbers this quarter, with IOC appearing as the preferred choice for conservative investors due to its attractive dividend profile.
