Government cut petrol price: Oil companies' stock down. Why?

Stocks

oi-Staff

By Super

Published: Tuesday, June 19, 2012, 14:52 [IST]

Finally, the Indian government heard the outcry of a common man and reduced the prices of petrol in India on Tuesday. Now, the petrol will become cheaper by Rs 2.22 per litre in New Delhi and Rs 1.85 per litre in rest of India.

This is the first reduction in the prices of petrol in 3 years and first since government deregulated price control on petrol in last June.

The stock of all three Oil Marketing Companies fell in opening trade. Why?

Right after the government slashed the price of petrol, the stocks of HPCL, BPCL and IOC started playing blood bath on the bourses, stocks of the companies touched a 52-week lows.

On the Bombay Stock Exchange (BSE), the scrip of HPCL was down by 5.30%, BPCL lost by 4.06% and IOC fell by 2.98%.

It's a relief on one side and outcry on another. Though it's a good news for a common man, but the step will widen the losses of OMCs. The move has been taken up by the government despite oil marketing companies continue to be under losses.

The average price of crude last year was around US$ 85 per barrel. And the price of crude has been appreciated up to US$ 110 a barrel, on the flip side the rupee devaluation is continue on the ride, the rupee has devalued to about Rs 4-5 against the dollar this year.

Though crude prices have been cooling down in recent months, but rupee versus dollar war is still on. The Indian rupee is inching closer towards 51 – a mark against dollar, which will again be expensive for OMCs to buy crude.

If this volatility continues for some more time, then OMCs may be forced again to raise price of petrol to cover losses.

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