Oil stocks jumps in opening session after government cuts windfall taxes imposed on Diesel and Petrol

Shares in oil refiners shot higher in Wednesday’s trade after the Indian government cut an unexpected tax on gasoline exports amid a slump in global prices.

Less than three weeks after they were enacted, India removed the export tax on gasoline and reduced unexpected charges on other fuels, providing relief to the country’s major oil explorers and fuel exporters.

Shares of Reliance Industries (RIL) rose over 4% to Rs 2,545.05 after the announcement, surpassing the M-cap of Rs 17 crore, before giving up some of its gains. On Tuesday, the scrip closed at Rs 2,442.20.

Oil and Natural Gas Corporation (ONGC)’s Stanley said oil refiners such as Reliance Industries, Oil India and ONGC will see a reduction in excess and equity appreciation and should start pricing high-margin sustainable energy once the government’s intent becomes clear.  “We believe RIL should get priced at $13 15 a barrel sustainable refinery margins while ONGC gets priced at $75-80 per barrel oil and $6 mmbtu per commodity deck. The two should imply 25-40 per cent upside to equities as energy markets are expected to remain tight despite the current volatility in oil and reduction in global fuel margins from peak levels,” Morgan Stanley said.

The Center completely removed the 6 rupees per liter duty on petrol exports and reduced the windfall tax on diesel and jet fuel shipments by 2 rupees (3 cents) per litre.

It also reduced the tax on locally produced crude oil by nearly 27% to Rs 17,000 per tonne, according to a government announcement.

On July 1, India introduced levies, joining a growing number of other countries that have done the same to capture the growing profits of the energy sector. However, the decline in global fuel costs has reduced profit margins for both oil producers and refiners.