Why Oil Marketing Companies Have Been Rallying

Shares of Indian oil refiners and marketers rose as the benchmark margins jumped over the last few days after a fire at the largest refinery in Europe.

Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd. and Bharat Petroleum Corporation Ltd. gained in the range of three to six percent. The shares tracked the Singapore gross refining margins, the Asian benchmark, which rose above $8 per barrel, according to an IDFC Securities sales note.

The GRM gauge started rising after a fire broke out at Shell's Pernis refinery in Rotterdam on July 30. The company has been assessing the damage and it is still unclear when the refinery will be fully operational, it said in a press release.

This as a positive for the Indian oil marketing companies as supplies would contract, brokerage IDFC Securities said in a note to customers. It sees the Singapore gross refining margins averaging around $7.3 per barrel in the quarter ending September. The refining margin is an indicator of the overall profitability of an oil marketing company.

IDFC Securities remains positive on the oil marketing companies as it expects the strength in GRMs to sustain along with potential inventory gains due to the rising crude oil prices in the second quarter.

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