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Equity Futures: Bulls bet on oil marketing cos as crude oil prices ease

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Equity Futures

Bulls bet on oil marketing cos as crude oil prices ease

This story was originally published at 18:23 IST on March 6, 2025  Back
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Informist, Thursday, Mar. 6, 2025

 

By Alina Geogy

 

MUMBAI – Traders added bullish bets to the futures and options contracts of oil marketing and refining companies Thursday as prices of Brent crude oil stayed below the $70 per barrel mark for the third consecutive day. Easing crude oil prices may result in lower raw material costs for these companies, boosting their marketing margins on retail fuel.

 

Traders added long positions to the call options of Bharat Petroleum Corp., Hindustan Petroleum Corp., and Indian Oil Corp. Premiums more than doubled on several call options of these companies. Shares of these three state-owned companies closed 3-4% higher Thursday. For Nifty 50 heavyweight Bharat Petroleum, the highest addition of open interest on the call side was at the INR 290-strike price, which implies a near-term upside of over 9% from Thursday's closing price. On the put side, the highest open interest addition was at the INR 260 strike, hardly 2% lower than the stock's current level.

 

Crude oil prices fell sharply after the Organization of the Petroleum Exporting Countries and allies decided to begin reversing their voluntary production cuts from April. The fall was aggravated by the imposition of tariffs by the US on Canada and Mexico, including on energy imports. The fall in prices of the commodity deepened after latest data from the US Energy Information Administration showed that crude oil inventories in the US rose more than analysts' expectations last week.

 

Lower crude oil prices benefit oil marketing and gas companies because it means lower input costs for petrochemical production and higher margins on retail fuel, ICICI Securities said in a report. Every $1-per-barrel reduction in crude oil prices raises the margin on retail fuel by around INR 0.50 per litre, the brokerage said. Thus, the recent $4–$5-per-barrel dip in crude oil prices raises blended retail margins by over INR 2.5 per litre, which is a material positive for oil marketing companies, it said.

 

However, JM Financial Institutional Securities maintained its cautious view on oil marketing companies even though the risk-reward ratio seems more balanced now after the recent correction in their share prices and the fall in crude oil prices, according to a report. The aggressive capital expenditure plans of these companies is cause for concern as many projects fail to create long-term value for shareholders, the brokerage said.

 

The fall in crude oil prices also led to buying momentum in paint and aviation stocks as both industries use derivatives of crude oil as key inputs. Shares of paintmakers Berger Paints and Asian Paints rose 3-5%. Shares of airline Spicejet rose over 2% on the BSE.

 

Easing crude oil prices, along with other factors such as a decline in the dollar index and the Reserve Bank of India's latest move to boost liquidity in the banking system boosted market sentiment Thursday. This drove the benchmark Nifty 50 index up nearly 1% to 22544.70 points at close. The March futures contract of the 50-stock index closed at a premium of 75.50 points to the spot index.

 

--Nifty 50 Mar closed at 22620.20, up 178.85 points
--Nifty 50 Apr closed at 22763.00, up 172.80 points; 218.30-point premium to spot index

--Nifty 50 May closed at 22875.00, up 169.55 points; 330.30-point premium to spot index

 

The most active underlying stocks on the NSE were Reliance Industries, HDFC Bank, REC, Tata Steel, Axis Bank, ICICI Bank, Bajaj Finance, Infosys, BSE, State Bank of India, and Coforge.  End

 

US$1 = INR 87.11

 

Edited by Rajeev Pai

 

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