In election year, $75-80 crude price may pose concerns for OMCs down the line: Dayanand Mittal

economictimes.indiatimes.com:

Dayanand Mittal, Research Analyst, JM Financials, says “in an election year, high crude prices may not be the right thing for OMCs. Currently they are making good money. Our sense is that probably in a month or so, once they recoup last year’s losses, the government will ask them to pass this on to the end consumers to tame inflation.

In case, crude prices were to spike thereafter, that may pose some concern for OMCs.”OMCs earnings are supernormal right now in terms of profits in the marketing business. Refining environment is stable. The sector benefits from cheaper Russian crude as well. Is it really the best time for OMCs?Yes, this is a good time for OMCs.

One, crude price has corrected plus the government is allowing OMCs to recoup last year’s losses and that is good to see. However, the challenge is we are entering into an election-heavy phase and our view on crude is that with the US shale not responding or not rising despite high oil prices, Opec has got unlimited pricing power. That is providing them a cushion to keep crude prices at a high level without worrying about alternative fuels.

In an election year, high crude prices may not be the right thing for OMCs. Currently they are making good money. Our sense is that probably in a month or so, once they recoup last year’s losses, the government will ask them to pass this on to the end consumers to tame inflation.

In case, crude prices were to spike thereafter, that may pose some concern for OMCs. So, yes, it is a good scenario right now but outlook wise, I would be a bit circumspect given a positive view on crude prices. When Mr Surana was the chairman of HPCL, they did a buyback.