HPCL, BPCL shares hit 52-week highs as Brent crude prices cool down

Brent crude prices have fallen from over $80 per barrel last week to now near $76 per barrel.

Shares of oil marketing companies Hindustan Petroleum Corp and Bharat Petroleum Corp hit their highest levels in 52 weeks on September 2 on the back of a decline in Brent crude prices, which is likely to aid their margins.

At 12.26 pm on September 2, shares of HPCL were trading 4 percent higher at Rs 435.60 on the NSE, after hitting a 52-week high of Rs 438 intraday. Similarly, BPCL shares were up 1 percent at Rs 367.20 on the NSE, off the 52-week high of Rs 367.20 that was hit intraday. Shares of Indian Oil Corp were also trading with gains of 1.5 percent at Rs 179.63.

Brent crude prices have fallen close to 7 percent in five sessions amid a decline in demand from China, the world's largest oil importer. Furthermore, expectations of an increase in OPEC+ production starting in October to make up for a significant decline in output from Libya, have added pressure on oil prices.

According to a Reuters report, the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, plan to move forward with an oil output hike in October. Specifically, eight OPEC+ members are slated to boost production by 180,000 barrels per day (bpd)as part of a strategy to gradually unwind their recent 2.2 million bpd cuts while keeping other reductions in place until the end of 2025.

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On account of this, Brent crude prices have slipped from a high of over $80 per barrel to now near $76 per barrel. Meanwhile, Goldman Sachs also predicted that Brent crude prices might slip to $68 per barrel by late 2025 if China oil demand remains flat through end of next year.

A decline in crude prices benefit oil marketing companies (OMCs) in several ways. Firstly, it reduces their input costs and give then more leeway to make higher margins as they can maintain or even increase the prices of refined products like petrol and diesel.

Additionally, OMCs can also enjoy the benefit of inventory gains as they replenish stocks at lower prices. In addition, lower fuel prices may also boost consumer demand, driving higher sales volumes, lifting revenues for these players.