Oil, gas stocks rally after PM hints on price hike

State-run oil and gas companies witnessed a rally in stock prices by 2-4 per cent on Friday on expectations of a fuel price hike following the Petroleum Ministry’s proposal of increasing the diesel price by Rs 10 over a period of next 10 months. BSE Oil and Gas index closed the highest among sectoral indices, up 2.38 per cent from its previous close. Scrip of HPCL rallied the most among PSU oil and gas majors on the BSE to close at Rs 292.90, up 4.23 per cent from its previous close. The stock also saw a more than double increase in its traded volume with total traded quantity being 2.01 lakh against the two week average quantity of 0.59 lakh. Eyeing better price: Similarly Indian Oil Corporation stock ended the day at Rs 268.80, up 3.03 per cent from its previous close while ONGC closed at Rs 265.85, up 2.49 per cent from its previous close. A senior oil and gas equity analyst said: “Through these announcements the Government is trying to attract the investors, get a better price for its follow-on public offers in companies such as Oil India Ltd and help reduce the rising fiscal deficit.” “Through this proposed move of price hike, Government is gradually attempting to wipe out all subsidies and it will benefit not just OMCs but also upstream oil companies as their net on price realisation would improve. However, these proposals also have to meet the due approvals from the PMO and the Cabinet before coming into effect,” he added. A senior Petroleum Ministry official on Thursday had said: “Based on the recommendations of the Kelkar Panel, the proposal is to increase diesel prices by Re 1 a litre every month for next 10 months. For kerosene, effort will be to raise the prices by Rs 10 a litre in phases over a period of two years.” However, the Government has taken no decision so far on the hike and clarified that the final decision would take place only after building a political consensus. The move to propose a price hike has come at a time when under recoveries of State-run OMCs for diesel have gone up nearly Rs 10 a litre while for kerosene, it is Rs 30.93 a litre. The OMCs are partially compensated for this revenue loss of selling below cost by the Government by way of cash subsidy. Last time the diesel price hike came was in September this year when it was raised by Rs 5 a litre after almost two years of the previous increase of Rs 2 a litre in June 2010. Kerosene price was last revised in June 2010 when it was hiked by Rs 3 a litre. According to the Petroleum Ministry, the under recovery on sale of diesel during 2012-13 is estimated to be above Rs 1,03,000 crore while for kerosene it will be about Rs 32,000 crore. While inaugurating the 57th meeting of the National Development Council in New Delhi on Thursday, Prime Minister Manmohan Singh had also alluded to the need for a phased price adjustment in pricing of petroleum and natural gas and limiting the extent of energy subsidies. He added that failure to control subsidies within limits would mean that other plan expenditures would have to be cut or the fiscal deficit target exceeded. In November, the Government revise its fiscal deficit target to 5.3 per cent of gross domestic product for the current financial year from a previous target of 5.1 per cent.