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Crude Price Collapse: Reward for HPCL and BPCL, While Profit Plummets for RIL and ONGC

Owing to the failure in agreement over crude oil between the Organisation for Petroleum Exporting Countries (OPEC) and its allies, Saudi Arabia’s topnotch crude producing company Saudi Aramco, in an effort to push more barrels into the market, unbridled a price war by narrowing its crude price by USD 4 to 6 per barrel for its Asian buyers. This impromptu step taken by the company will turn out to be a privilege for some of the leading crude producers in India, since, lower procurement cost will boost refining margins for manufacturing companies like Hindustan Petroleum Corp. Ltd (HPCL) and Bharat Petroleum Corp. Ltd (BPCL). However, a slump in the demand with loss in inventory can be witnessed, still a 7-8 percent profit is indicative from the drop in the crude prices. The profit however, can emerge in terms of reduction in working capital, price concession in crude derivatives from Middle East, and a plunge in fuel loss which majority of the refineries incur due to the fuel lost in the system while processing crude oil into petroleum products. The effect of the decline in price can be seen in the Saudi stock market, which descended by a staggering rate of 8 percent. The dip in the international stock market has shown adverse effect on the domestic market by reducing their attractive valuation of the crude prices, the result of which, shares of Oil and Natural Gas Corp. Ltd (ONGC) fell around 11 percent. On the other hand, Reliance Industries Limited (RIL) plans to become a zero net debt company by 31 March, 2021, but considering the events unfolding, and the stock which are already declining by 7 percent, it is being anticipated that there will be delay in the Reliance Industries Limited (RIL) debt reduction plan. It is a matter of concern that with the looming growth of Coronavirus, all such harsh incident should not occur when already the demand for every commodity is gradually decreasing.