Crude oil crash might affect RIL-Aramco deal, BPCL divestment and much more

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Crude oil crash might affect RIL-Aramco deal, BPCL divestment and much more
  • The BPCL stocks lost over 13% since March, and a stake sale at this point may yield the government less funds from divestment.
  • It can also spoil the prospects of oil giants like Saudi’s Aramco, which was planning to pour billions to buy a stake in Reliance Industries (RIL).
The crude oil price futures went where no one expected them to go — below zero. While it inspired jokes that a trip to the petrol pump might yield money, there is nothing funny about its effects. Hundreds of US companies are expected to go bankrupt and Indian economy is not immune to it either.

“The oil price crash has brought the major oil companies on its knees, the way in which we were expecting them to start putting money into India, those pathways have been closed,” said Mihir Sharma from Observer Research Foundation.

A lot of funds that Indian companies and the government were looking to raise, might be clouded by this historic crash. The biggest of them are state owned oil refiner BPCL’s divestment, and $15 billion billion deal between Reliance Industries and Saudi Aramco.

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“We expected that maybe there would be people from the oil industry who will participate in driving BPCL stock price up as in when the government began to sell it. Those companies are currently looking for better ways that they can put their cash reserves to use,” Sharma added.

BPCL stake sale may get delayed

Crude oil crash is not at all good news for the Bharat Petroleum Corporation (BPCL) divestment plans of the government. The BPCL stock lost over 13% since the start of March, and the stake sale at this point may leave less in the government’s kitty.

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At a time when the profits of large oil firms are under stress, it is very unlikely that any petroleum major will loosen their purse strings, an analyst at a domestic brokerage told Business Standard. The lower crude prices also put potential players under stress, who could have acquired the stake in BPCL.

“If the BPCL divestment took place in January to March quarter, India would have been lucky to have that happen,”said Deven Choksey of Kisan Ratilal Choksey Investment told Business Insider. But it did not, and now it might not happen anytime soon.

Aramco might hold back on RIL

The crash can also spoil the prospects of oil giants like Saudi’s Aramco, which was planning to pour billions into Reliance Industries (RIL). Saudi Aramco, which is one of the world’s largest oil producers, will also see a dip in fortunes. The country along with other OPEC nations, have been cutting down on production to keep up with the slowing demand due to the Coronavirus pandemic.
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“We thought that Aramco would put money into RIL, but after this oil price crash, many companies are now looking for the ways that they can put their cash reserves to use,” said Sharma. Last August, RIL sealed a deal with Aramco which was expected to buy 20% stake in the former’s oil business. It was supposed to close by the end of March which seems to have been delayed.

Although the lockdown was necessary to stop the COVID-19 impact from spreading further, the harm it has done to the global economy may take years to recover, said Sharma.