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Why shares of oil refiners and producers plunged on Friday?

Centre announced hike in tax on export of petrol, diesel and aviation turbine fuel

oil rep reuters Representational image | Reuters

Shares of oil refiners like Reliance Industries, Mangalore Refinery and Petrochemicals (MRPL) and domestic oil producers like Oil and Natural Gas Corp (ONGC) and Oil India plunged on Friday after the government announced increase in tax on export of petrol, diesel and aviation turbine fuel.

The government has imposed additional excise duty of Rs 6 per litre on export of petrol and Rs 13 per litre on diesel on export of diesel. It also imposed additional excise duty of Rs 6 per litre imposed on the export of aviation turbine fuel.

A cess was also imposed on domestic crude oil producers.

“Crude prices have risen sharply in recent months. The domestic crude producers sell crude to domestic refineries at international parity prices. As a result, the domestic crude producers are making windfall gains. Taking this into account, a cess of Rs. 23,250 per tonne has been imposed on crude. Import of crude would not be subject to this cess,” the finance ministry said.

Small producers, whose annual production of crude in the preceding financial year is less than 2 million barrels will be exempt from this cess.

These measures will hit earnings of oil producers and refiners and therefore many of these stocks came under huge selling pressure on Friday.

Reliance Industries shares plunged 7.1 per cent on Friday to close at Rs 2,408.95 on the BSE. Other oil stocks too were under pressure with MRPL falling 10 per cent to Rs 81.55, ONGC tumbled 13.4 per cent to Rs 131.15 and Oil India was down 15 per cent to Rs 213.95.

These additional taxes come in the wake of oil refiners reaping huge benefits from exporting fuel. Local crude oil producers too have benefited from the global surge in crude oil prices in the wake of the Russian invasion of Ukraine.

The finance ministry noted that since exports have become “highly remunerative”, it has been seen that “certain refiners are drying out their pumps in the domestic market”.

These measures are unlikely to impact the domestic fuel prices, but the government hopes it will ensure domestic availability of petroleum products.

The move, which also included a increase in customs duty on gold, is also seen as a step to shore up the rapidly depreciating rupee. The rupee hit a all-time low of 79.12 to the US dollar on Friday. It eventually recovered and closed 12 paise higher at Rs 78.94 level.

Higher crude and other commmodity prices has also put a pressure on India’s current account deficit. While the CAD narrowed to 1.5 per cent of GDP in the January-March quarter, several economists feel it could top 3 per cent in the current year ending March 2023. 


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