ONGC, Oil India, IOC shares rise up to 2% as govt scraps windfall tax on domestic crude

Shares of oil and gas companies gained up to 2% in opening trade on Wednesday as investors cheered the government’s decision to scrap windfall tax on petroleum crude. The Centre on Tuesday cut the windfall tax on domestically produced crude oil to ‘nil’ per tonne with effect from September 18. The move will provide big relief to the oil marketing companies such as state-run Oil and Natural Gas (ONGC) and Oil India, as well as private players like Reliance Industries and Adani Total Gas.

The decision has been taken in the backdrop of sharp decline in international crude prices recently. The Brent crude prices have fallen over 25% from their 52-week highs of $98 per barrel to $72.7 a barrel today amid ongoing global economic concerns and subdued demand outlook.   

The central government started imposing windfall taxes on the exports of domestically produced crude oil from July 1, 2022, to curb profits from high refining margins. The tax is revised every 15 days based on the average oil prices in two weeks and levied in the form of Special Additional Excise Duty (SAED).  

As per the official notification, the SAED on the export of diesel, petrol and jet fuel has been retained at ‘nil’, effective from September 18.

In the last review on August 30, the windfall tax on petroleum crude was reduced by nearly 12% to ₹1,850 per tonne from the previous ₹2,100 per tonne, effective from August 31. 

Reacting to the news, shares of ONGC, the country’s largest natural gas explorer, gained more than 1%, while Oil India shares rose up to 2% in the early trade. Among other state-owned players, Bharat Petroleum Corporation Ltd (BPCL), Indian Oil Corporation Limited, and Hindustan Petroleum Corporation Ltd (HPCL) were trading marginally higher.

On the other hand, the share price of Reliance Industries, the country’s most valued firm, and Adani Total Gas were marginally down.

Meanwhile, the NSE Nifty energy index were marginally up by 0.1%, while the equity benchmarks Sensex and Nifty were trading flat with negative bias.

In the recent time, the Brent crude prices have fallen significantly amid global economic concerns and subdued demand from the U.S. and China, the world’s largest crude importers. The worries about softening demand in China amid surge in electric vehicle sales have raised concerns about future demand outlook.  

Last week, the OPEC (Organisation of the Petroleum Exporting Countries) cut its demand forecast for global oil demand for the second time in two months. The organisation of oil producers pegged that world oil demand would rise by 2.03 million barrels per day (bpd) in 2024, down from 2.11 million bpd expected last month. Going ahead, it expects demand growth of 1.7 million bpd next year, about 40,000 bpd lower than originally estimated.

Domestic brokerage Prabhudas Lilladher in a latest report said that recent global developments leading to ample supplies amid weaker demand prospects have pushed Brent oil prices lower. The brokerage expects oil prices to rebound to $75-80 per barrel in the near term, citing delay in production by the OPEC+.

ICICI Securities in a report said that recent bearishness in global oil & gas prices creates a positive margin scenario for Indian oil & gas companies. “Overall, we would expect crude to average below FY24’s average of $83/bbl for FY25E; on balance, we reduce FY25/26/27E Brent estimates to $80/85/85 per bbl vs. $85/87/87 earlier.”

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