Indian oil marketing companies’ stocks rose on Wednesday as a result of the fall in the global crude oil prices while petrochemical stocks came under selling pressure on margin squeeze fear. The OMC stocks were up with Indian Oil Corporation up by 3-5 percent, BPCL and HPCL were also up by 3-5 percent.

The optimism in OMC stocks is due to the fact that the international crude oil prices have declined by more than 5% in the last one week. The global benchmark, the Brent crude fell below $90 per barrel which was a relief to oil importers such as India. Normally, lower crude prices mean lower input costs for OMCs and this could mean higher profit margins for OMCs if they do not adjust the retail fuel prices.

As it has been observed that the current situation seems to be more advantageous for the OMCs since they can perhaps enhance their marketing margins. The government has had in the past maintained retail fuel prices fixed while global oil prices have been volatile thus cutting the margins of these firms. Nevertheless, the current drop in the price of crude is an opportunity for the expansion of the operating margin without having to raise pump prices.

While OMC stocks received the support of bull run, petrochemical companies came under pressure. Some of the key players which include Reliance Industries, petrochemical segment of Indian Oil Corporation and pure play petrochemical companies dipped by 1-3%. Selling in these stocks is due to possible margin decline in view of lower crude oil price, which may affect the ability of petrochemical products to pass on cost to consumers.

The variation in the performance of OMCs and petrochemical stocks also indicate that there are a number of factors that are driving the segments of the energy sector. Lower crude price help oil refiners and marketers while being a problem for petrochemical producers if demand is not strong.

Market players are focusing on the fundamental factors that affect the global oil market such as the OPEC+ output and the political events that may have an impact on the crude prices. Further, any persistent decrease in oil prices will lead to an improvement in the sentiment regarding OMC stocks and had a negative impact on petrochemical firms.

The rally in OMC stocks also comes at a time when India is witnessing increase in energy demand and the government has been advocating the use of low sulphur products. Business people are considering the long-term prospects of these companies when it comes to changing over to cleaner sources of power.

In the policy front there are rumors that fuel prices might be deregulated which has a huge implication for the OMCs. Although there have been no official communication on this front, anything that shifts the country closer to market linked pricing could be seen positively by the investors, and hence, may lead to re-rating of these stocks.

The overall energy sector in India is in the process of change with new emphasis on renewable energy and electric vehicles. This change is forcing the conventional oil and gas firms to expand their business and invest in new technologies. They are closely observing how these firms react to shifting environment and plan for the future development.

During the course of the trading session, it was observed that the overall upmove in OMC stocks was on the brink of stabilizing and some amount of profit selling was seen at the higher levels. But the near-term future of the sector is bright, according to analysts, who note that the favorable macroeconomic conditions and possibly better earnings in the next quarters.

The fluctuating trends of OMCs and petrochemical stocks are the significant pointers to the fact that the energy sector investment calls for a differential approach. For the foreseeable future, the global oil markets are likely to remain unpredictable while the energy transition process continues to progress, which means that the investors will continue to be rather picky, only investing in the companies that are most suited to this changing environment.