Avendus Capital Pvt. has upgraded public sector oil marketing companies from an 'add' to a 'buy' rating due to low crude prices.
It prefers BPCL Ltd., Indian Oil Corporation Ltd., and HPCL Ltd. in the same order.
Crude could be priced between $75 and $85 per barrel, Avendus Capital said. OMCs typically outperform during stable or low oil prices, according to the brokerage.
Shares of Hindustan Petroleum Corp. advanced 3.06% to Rs 237.4 apiece, as of 9:59 a.m., in trade on Thursday. The Nifty was trading lower by 0.52%. The scrip rose 4.54%—the most in nine weeks since Jan. 11, 2023.
Bharat Petroleum Corp. advanced 3.15% to Rs 340.7 apiece. The NSE Nifty 50 was trading lower, the same as Hindustan Petroleum Corp. The scrip rose 4.89%, the most since Nov. 28, 2022.
Indian Oil Corp. also advanced 0.64% to Rs 79.1 apiece. Nifty traded lower by 0.52% as well. The scrip rose 1.97%, the most since March 6, 2023.
Avendus Capital On OMCs
Range-bound crude prices help OMCs to have a relatively stable marketing margin, low working capital, and a better gross refining margin on lower fuel utility and loss.
As per the brokerage, near-term refining margins will benefit from lower sourcing costs, a higher Russia mix, and lower Middle East premiums.
Two out of the three global agencies expect demand to outpace supply growth. Mixed signals on global oil trends, China's reopening, and aviation turbine fuel will drive the demand growth.
Higher global crude inventories, excess China crude, headroom in Russia to produce more, and OPEC+ production all favour slower oil prices, which could be further propelled by recession.
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