Crude oil prices have risen sharply with the Brent trading above the $50 level for the first time since March on hopes of speedy demand recovery amid positive developments over coronavirus vaccination rollouts.
India, being a major oil importer, may see some impact on inflation as well as trade deficits due to the rising international oil prices.
However, analysts believe at the current level, crude oil prices may not pose any risk to oil marketing companies (OMC) as they still remain in the ‘sweet spot’.
Abhijeet Bora, senior analyst at Sharekhan believes that crude oil prices around $52-55 per barrel may not hurt OMCs and will be beneficial for the entire oil & gas sector.
"At current levels, crude oil price does not pose any risk to Indian OMCs' marketing margins. The sale volumes of petrol and diesel are increasing and these OMCs will be beneficiary of high volumes and their gross refining margins (GRM) are likely to recover with it," Bora said.
He is of the view that even if oil prices continue to rise going ahead, the OMCs will be relieved by having inventory gains.
He expects that there is still scope for excise duty cut by the government.
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Bora continues to be bullish on the sector and expects GAIL India to be the biggest beneficiary of the rising crude oil prices.
"High crude prices augurs well for oil explorers and gas companies. GAIL’s gas trading business will benefit the most from rising oil prices. The company is a direct beneficiary of high product realisation. The company's hydrocarbon business is also expected to do well going ahead," he said.
However, the production of gas companies has been flattish in the last couple of years and there are regulatory uncertainties in the gas sector.
Bora said GAIL will be the safer bet as the production is likely to recover
(Edited by : Jomy)