Crude price crash a mixed bag for Indian oil firms; RIL and ONGC lose

Saudi Arabian Oil Co., or Saudi Aramco, has slashed its crude pricing for Asia region by $4-6 per barrel for April in an effort to push more of its produce into the market. For Indian state-owned refiners, such as Hindustan Petroleum Corp. Ltd (HPCL) and Bharat Petroleum Corp. Ltd (BPCL), this is a boon, as lower procurement costs will boost refining margins.

Of course, the gains will be offset by inventory losses, and the general softness in demand will restrict gains. Nevertheless, HPCL and BPCL shares were up 5-6%, indicating that analysts expected net benefits from the drop in oil prices.

Analysts at Kotak Institutional Equities expect BPCL, HPCL and Indian Oil Corp. Ltd (IOC) to benefit from lower crude oil prices in multiple ways—(1) improvement in marketing margins, (2) reduction in “fuel and loss”, (3) increase in crude discounts from the Middle East region and (4) lower working capit