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HomeMarket NewsHere's why falling oil prices are beneficial for OMCs, paint stocks, aviation companies
Conversely, Oil prices falling are negative for Oil India and ONGC as it adversely impacts their margin. The price of the products refined by them may not fall as quickly or in proportion to the fall seen in crude oil prices and hence, refineries which have held inventories bought at higher prices may face inventory losses.
Shares of oil marketing companies (OMCs), Hindustan Petroleum Corporation Ltd. (HPCL), Bharat Petroleum (BPCL) and Indian Oil (IOC), along with paint stocks, and aviation leader InterGlobe Aviation surged in trade on Monday, May 5, after Brent crude oil prices fell below the mark of $60 per barrel.
Falling oil prices are beneficial for oil sensitives like OMCs, paint stocks and aviation companies. However, they are negative for upstream oil explorers like ONGC and Oil India, and both shares are trading with losses on Monday.
Brent crude prices tumbled as much as 4.1% towards $58
per barrel after OPEC+ agreed to another output increase, bolstering supplies at a time when the demand is challenged by the drag from the trade war and fanning concerns regarding a glut. Brent is now very close to its lowest levels in four years. Meanwhile, the West Texas Intermediate was near $55.
Shares of Oil and Natural Gas Corporation (ONGC) and Oil India Ltd declined around 4% each to hit an intraday low of ₹234.5 apiece and ₹388.7 per share, respectively, on Monday.
Meanwhile, shares of Asian Paints and Berger Paints
gained around 2.7% each to hit an intraday high of ₹2,475 apiece and ₹588 per share, respectively.
Oil prices falling are negative for Oil India and ONGC as it adversely impacts their margin. The price of the products refined by them may not fall as quickly or in proportion to the fall seen in crude oil prices and hence, refineries which have held inventories bought at higher prices may face inventory losses.
ONGC loses around ₹300 crore to ₹400 crore in annual revenue for every $1 per barrel fall in crude oil. Conversely, a $1 fall in crude prices can improve the Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) of the OMCs by ₹200 crore to ₹300 crore.
Meanwhile, for paint companies, up to 50% of their input cost is linked to crude. Hence, a decline in the commodity reduces the raw material costs and improves margin. Falling crude is also beneficial for aviation companies, as it leads to a decline in their input costs, and as a result of which, shares of InterGlobe Aviation are trading with gains of as much as 4% on Monday.
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