A continued decline in Brent crude prices has come as a blessing for oil marketing companies and paint manufacturers, while at the same time, dented sentiment for oil refiners.
A decline in crude prices benefits oil marketing companies (OMCs) and paint manufacturers as that reduces their input costs and gives them more leeway to generate higher margins. In addition to that, OMCs can also capitalise on inventory gains by restocking at reduced prices. Also, lower fuel prices may boost consumer demand, driving higher sales volumes, and lifting revenues for these players.
Buoyed by these positive triggers driven by a fall in crude prices, shares of OMC companies like HPCL, BPCL and IOCL rose 1-3.5 percent in trade on September 4. Gains in the segment were led by HPCL, which rose 3.5 percent and hit a record high of Rs 442.50 on the NSE.
Paint stocks also glimmered in the green, with Asian Paints, Indigo Paints, Shalimar Paints and Berger Paints India gaining 1.5-5 percent.
However, on the flipside, the fall in crude prices will have a negative bearing on oil drilling stocks like ONGC and Oil India as it squeezes their profit margins. This is because the price of refined products may not drop as quickly or proportionately and hence, refineries holding inventories bought at higher prices may face inventory losses as the value of their stock decreases.
Consequently, shares of upstream companies -- Oil India and Oil and Natural Gas Corp -- were trading with cuts of over 1 percent and 2.5 percent, respectively.
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Brent crude prices fell to their lowest levels in almost nine months, slipping closer to $73 per barrel, marking a sharp fall from a high of over $81 per barrel last week. Pressure on Brent prices is stemming from concerns of a demand slowdown in China, the world's largest importer of the commodity, due to an increased adoption of electric vehicles.
Additionally, the prospect of resolving the dispute that has stalled Libyan crude production and exports adds pressure due to the potential for excess supply. Expectations of increased OPEC+ production starting in October, intended to offset a sharp decline in Libyan output, further contribute to the downward pressure.
According to Reuters, OPEC+ plans to boost oil output in October, with eight member countries increasing production by 180,000 barrels per day. This is part of a plan to gradually reverse recent production cuts while keeping some reductions in place until the end of 2025.
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