Windfall tax on diesel, ATF cut; oil stocks rise

Shares of oil and gas stocks rose on Monday, in sync with the broader market, after the government slashed the windfall tax on domestic crude oil and exports of ATF. The S&P BSE Oil & Gas index was the best performer among the sectoral indices, led by Indraprastha Gas, Hindustan Petroleum Corporation Ltd. (HPCL), Adani Total Gas, Oil And Natural Gas Corporation (ONGC), and Reliance Industries.

In the fifth round of revisions since the introduction of the windfall profit tax on oil export in July 2022, the Centre has reduced tax on domestically-produced crude oil to ₹10,500 per tonne from ₹13,300 per tonne. The tax levy on diesel was lowered to ₹10 per litre from ₹13.5, while the export tax on aviation turbine fuel (ATF) was also reduced to ₹5 a litre from ₹9 with effect from September 17, the finance ministry notification on Friday night.

Boosted by the development, shares of Reliance Industries, the country’s most valued firm, rose 0.9% to ₹2,521.9 on the BSE. The stock has gained after falling 4.6% in the past three sessions.

Shares of ONGC, the country’s largest natural gas explorer, climbed as much as 2.3% to hit an intraday high of ₹134.25 on the BSE, snapping four sessions losing streak.

Indraprastha Gas (IGL) was the biggest gainer in the oil and gas space, rising 3.03% to touch a high of ₹428.75 during the session so far. Among others, BPCL, HPCL, Adani Total Gas are traded higher with marginal gains.

Despite a cut in ATF export levy, shares of airline companies InterGlobe Aviation, the parent company of low-cost carrier IndiGo, and SpiceJet fell up to 1.5%. The jet fuel or Aviation Turbine Fuel (ATF) prices make up for almost 40% of the running cost of an airline.

In comparision, the BSE Sensex was up 196 points at 59,037 levels, with 19 of its 30 constituents floating in the green zone. 

The FinMin reviews cess levy fortnightly taking into view the global crude oil prices. The price of Brent and U.S. crude has witnessed a sharp correction in the last one month, with international benchmark Brent falling below $90 per barrel, its lowest level since early February this year, amid concern that the global economic slowdown will weigh on the demand outlook. In Asian trading hours on Monday, the Brent oil for November delivery was quoting at $92.3 a barrel, up 0.8%, while the U.S. West Texas Intermediate (WTI) crude October futures rose 0.96% to $85.58 a barrel.

The finance ministry, in its last notification on August 31, had increased the windfall tax on domestically produced petroleum crude to ₹13,300 per tonne from ₹13,000 earlier. The tax on diesel export was increased to ₹13.5 per litre from ₹9 per litre earlier, and the ATF export levy, which was ₹2 per litre earlier, was hiked to ₹9 per litre.

The Centre first introduced a cess of ₹23,250 per tonne by way of special additional excise duty (SAED) on domestically produced crude oil on July 1, 2022. Import of crude oil was not subject to this cess. The centre decided to impose a windfall tax on oil export to tap into the huge profits oil producers and refiners were making on oil export. The measures were supposed to compensate for the excise duty cut on fuel, which was announced in May 2022.