Windfall Tax on Domestic Crude Oil Reduced to Zero: Stocks such as Oil and Natural Gas Corporation and Oil India – oil exploration and production companies rose in morning trading on May 16 after the government slashed windfall tax on crude oil exports from Rs 4,100 per ton to zero.
In this sector, Indian Oil, ONGC and GAIL India gained the most, while Adani Total Gas, Indraprastha Gas and heavyweight Reliance Industries (RIL) were the biggest underperformers. The BSE Oil & Gas index overall witnessed an increase of 147 points or 0.8 percent so far in the day.
Meanwhile, the Nifty Oil & Gas index saw a marginal rise of 0.12 percent to trade at 7,576.80. This index crossed the 7,600 mark and reached an intraday high of 7,622.95.
Indian Oil was the biggest winner with an increase of 2.03 percent, followed by ONGC and BPCL with 1.5 percent and 1.3 percent respectively. Gujarat Gas and HPCL also rose 1.2 percent and 1.1 percent respectively. GAIL and Petronet LNG were up nearly one percent.
Turning to the top bear, Adani Total Gas was down 5 percent, followed by IGL whose share prices fell 1 percent.
The windfall tax on crude oil has been reduced to zero from Rs 4,100 per tonne, according to a notification from the government at the end of May 15. The exemption will take effect from today.
The windfall tax, also known as the special additional excise tax (SAED), was already nil on aviation turbine fuel (ATF), gasoline and diesel. This has been left unchanged.
The decision to also waive the crude oil tax was taken during the Treasury Department’s biweekly review. At the previous review meeting on May 1, the government had reduced the windfall tax on crude oil from Rs 6,400 per tonne to Rs 4,100.
Bhavik Patel, Commodity/Currency analyst Tradebulls Securities, explained that “the reason behind the windfall tax cut to zero was the weakening of international oil prices. The tax was calculated every two weeks based on average oil prices over the past two weeks and OMCs’ margins that refiners earn on overseas shipments. With WTI trading around $71.50, the government has proposed reducing the windfall tax. However, if prices rise in the future along with refining margins, the government will levy a windfall tax according to the calculation based on the average oil price. Oil marketing companies will not have a major impact as margins (difference between international oil price minus costs) are currently low, so any windfall tax reduction will be negligible on the companies’ books. “
Windfall tax was introduced by the government on July 1, 2022 to tax the industry with the large profits it made from selling refined crude oil on the international market. Its size is reviewed every two weeks based on fluctuations in international crude oil rates.
Producers, including the state-owned Oil and Natural Gas Corporation (ONGC) and Vedanta-controlled Cairn, were hit by the windfall tax on domestic crude.
Rising global crude oil prices are seen as positive for domestic oil producers such as ONGC and Oil India.
In this regard, the central government began imposing the windfall tax on crude oil producers in July last year, and the same was levied on gasoline, diesel and ATF exports after private refiners profited from robust refining margins in overseas markets.
The price of crude oil on international markets is currently hovering around $75 a barrel. On Monday, Brent crude oil futures rose $1.06, or 1.4 percent, to settle at $75.23 a barrel, while US West Texas Intermediate oil price declined to $71.11 a barrel, an increase of $1.07 or 1.5 percent.
Oil benchmarks fell for a fourth consecutive week last week, the longest streak of weekly declines since September 2022, amid fears of a US recession and the risk of a historic government debt default in early June, according to a Reuters report.
On a year-over-year basis, ONGC shares are up 10 percent, while Oil India shares are up nearly 21 percent. Over the past six months, ONGC is up nearly 17 percent and Oil India is up 27 percent.
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