Oil India, ONGC, RIL up after government slashes windfall tax, crude gains

Shares of upstream oil companies jumped up to 4 percent on December 19 after the government slashed the windfall tax and crude oil prices inched up in the international market.

The crude rose on concerns of disruption in maritime trade as the Iran-backed Houthi militants attacked ships in the Red Sea, forcing four shipping giants to suspend operations in the region.

The government’s previous night’s move to slash the windfall profit tax on production of crude oil and exports of diesel also aided sentiment.

The tax, levied in the form of Special Additional Excise Duty (SAED), on domestically produced crude oil has been reduced to Rs 1,300 from Rs 5,000 a tonne, a notification said.

Downstream oil companies shares also gained up to 0.8 percent. Oil marketing companies, which sell fuel products to consumers, can see increased profitability when global prices drop as their procurement costs decline, assuming selling prices remain stable.

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At 1.44 pm, shares of upstream oil companies including exploration and production firms traded higher.

Oil India was up 4.4 percent at Rs 335 on the National Stock Exchange (NSE). Oil and Natural Gas Corporation (ONGC) rose 0.6 percent to Rs 200.20 and Reliance Industries (RIL) was up 1.72 percent at Rs 2,564.35.

Major downstream oil companies, including refiners Indian Oil Corporation, Bharat Petroleum Corporation Ltd, and Hindustan Petroleum Corporation Ltd, also traded with gains.

IOC was up 0.68 percent at Rs 125.20 on NSE. HPCL was at Rs 382.25, up 0.8 percent,  and BPCL was trading 0.55 percent up at Rs 449.65

The government cut SAED on the export of diesel to Rs 0.50 a litre from Rs 1 but imposed a levy on export of jet fuel, or ATF, at Rs 1 a litre. The rates are effective December 19.

India first imposed the windfall profit tax on July 1, 2022 to tax the supernormal profits of energy companies. The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.

Also Read | Govt lowers windfall profit tax on diesel exports, domestic crude oil

Analysts don’t see an immediate impact of the windfall tax cut on oil companies. “With crude prices correcting to $75/bbl, the government has cut the duties. The idea is that ONGC and Oil India’s realisation is capped at $75/bbl. Hence, there will be no impact on them,” said Avishek Datta, Research Analyst, Anand Rathi Institutional Equities.

“As for refiners, since they have to pay market prices, there will not be any impact on their profitability because of the cut in windfall taxes.”

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