Feature

Crude is cheap but is it a good time to buy into OMCs?

Their valuations look slippery as demand recovery looks uncertain

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Not just global economies, but crude oil has also been on a wild ride since the start of 2020. As OPEC’s de-facto leader Saudi Arabia and Russia bickered about who would do the heavy-lifting in production cuts, but did the opposite of that, Brent Crude continued its downward spiral. It has fallen almost 50% since its January 2 level of $65/barrel. In fact, it even hit its two-decade low of $16 on April 22. One would think a country like India should have been the biggest gainer from this drop. We source nearly 85% of our crude requirement. With the collapse in price, the government stands to save almost 50% ($50 billion) on its import bill, assuming the average price at $30/barrel. But that’s the good part of the story.

 

Now, for the bad — the gain comes in the midst of massive demand destruction in the economy, on account of the ill-conceived lockdown post COVID-19The government collected only Rs.975 billion in GST in the truncated month of March, missing its target of Rs.1.15 trillion. With nearly no business activity in April and partial activity in May, it stands to lose an estimated Rs.2 trillion in revenue from GST collecti

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