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Stocks of state-owned oil-marketing companies are likely to trade in the positive territory next week, as fuel price hike is imminent, as stated by Minister of Petroleum and Natural Gas Veerappa Moily yesterday. The minister said a decision on revising prices of petroleum products like diesel and cooking gas was expected soon but declined to put any time frame on the exercise. Any increase in prices of subsidised diesel, kerosene, and cooking gas would help in cutting the subsidy burden of state-owned oil companies by bringing the prices of the fuels closer to market rates.
Upstream oil and gas companies are also likely to gain in case the government decides to hike fuel prices, as companies like Oil and Natural Gas Corp Ltd, Oil India Ltd, and GAIL (India) Ltd shoulder a chunk of the subsidy burden. We see the oil ministry proposal to gradually increase diesel and kerosene prices, if implemented, as a positive for the PSU oil companies.
However, implementation would be crucial given the Government's social and political compulsions. The oil ministry proposal seeks to raise retail price of diesel by 1.5 rupees per ltr every month until March, and thereafter by 1 rupee every month till the retailers' revenue losses on the fuel are eliminated. It also mooted a hike in kerosene prices by 35 paise per ltr every month until March 2015, or by 1 rupee per ltr every quarter.
For subsidised cooking gas, the oil ministry proposes a 130-rupee hike on 14.2-kg LPG cylinder by March. From 2013-14, the remaining losses on LPG could be eliminated by raising prices by 50 rupees per cylinder every quarter, the ministry proposed. The current revenue loss on LPG is 490.50 rupees per cylinder. The oil companies are also seen taking cues from the broad market that would eye companies' Oct-Dec earnings next week and inflation data for December that would be keenly eyed on Monday.
