Why Oil Refiners’ Shares Rose This Week

Shares of Indian oil refiners and marketers rose throughout the week on several macro factors and better-than-expected earnings.

Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd. and Bharat Petroleum Corporation Ltd. gained more than 9 percent. IOC was the top performer on the Nifty 50 Index, gaining close to 14 percent in the last five sessions, followed by BPCL's 10 percent rise. While BPCL is yet to come out with its earnings, IOC and HPCL beat estimates in the three months ended June.

Here's what drove the rally...

Kerosene Deregulation

IOC's chairman confirmed to BloombergQuint in a post-earnings interaction that the government has asked oil marketers to increase kerosene prices to end the subsidy gradually.

While increasing prices will have no impact on the company's earnings, it won't have to wait for the government's subsidy payments once the fuel is completely deregulated.

Rupee

The rupee appreciated to Rs 63.69 against the U.S. dollar during the week – touching its two-year high. A stronger rupee reduces the costs for oil marketing companies as they shell out fewer dollars to buy crude.

Crude Prices

Crude prices have risen to over $50 per barrel, the highest in the last two months. Higher crude prices could help the oil marketing companies cover the inventory losses incurred in the first quarter ended June. IOC and HPCL's inventory loss stood at Rs 4,000 crore and Rs 1,600 crore, respectively.

Singapore GRM

Singapore gross refining margins, the Asian benchmark, rose above $8 per barrel after a fire forced a shutdown at Europe's largest refinery, IDFC Securities said in a sales note. GRM, what a company earns to refine a barrel of crude, indicates its profitability. So far this quarter, Singapore GRM averaged around $7.3 per barrel, 14 percent higher than the first-quarter average.

IOC

IOC's profit rose 22 percent to Rs 4,549 crore in April-June and the net revenue rose 5 percent to Rs 1,05,434 crore as the company reported its highest ever sales volume of 22.5 million metric tonnes.

Inventory losses were lower than expected, while the gross refining margin stood at $4.32 per barrel.

Also Read: IOC's Net Profit Beats Estimates With 22% Profit Growth

HPCL

HPCL's net profit nearly halved, missing analyst estimates, even as the gross refining margin beats estimates. GRM stood at $5.86 per versus the analysts estimate of $4.9 a barrel.

Net profit fell 49.2 percent sequentially to Rs 925 crore, while revenue declined 3.8 percent to Rs 53,469 crore year-on-year.

Also Read: HPCL Q1 Profit Halves On Inventory Loss