Thursday, July 2, 2009

Fuel price hike boosts PSU oil firms

Shares in state-run oil companies jumped on Thursday after an unexpected hike in government-set fuel prices raised hopes of a lower fuel subsidy burden for the companies.

Late on Wednesday, Govt unexpectedly raised gasoline and diesel prices by as much as 10 per cent, its first increase this year, passing some of oil's rally into an economy just beginning to find its feet amid a global recession.

The government-controlled fuel pricing regime forces state-run producers such as Oil and Natural Gas Corp to partially subsidise state oil marketing companies, which in turn, sell products at low prices to consumers.

At 10:39 a.m. (0509) GMT, shares in ONGC (ONGC.NS : 1127 +75.4) were trading 3.08 per cent higher at 1,085 rupees in a Mumbai market which was down 0.2 per cent.

Earlier in the day, ONGC Chairman R.S. Sharma told a TV channel that the company's fuel subsidy burden for the current year will be significantly lower than the previous year, if the crude prices stay around the current level.

"If the prices remain around $70 a barrel, surely the subsidy burden is going to be less," Sharma said when asked if the recent fuel price hike would help ease the company's subsidy burden.

State-run oil refining and marketing companies Indian Oil, Hindustan Petroleum and Bharat Petroleum (BPCL.NS : 454.15 -1.15) rose 1.7-3.1 per cent in early deals.

"With the pass-on of prices at a fast pace, the government has not only reduced the long-term under-recovery burden on the sector, but has also increased our confidence in its intent to pass on prices to consumers," Edelweiss Securities said in a note on Wednesday.

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