Investors bought oil & gas shares heavily in a weak market on Wednesday, hoping

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that the empowered group of ministers will raise fuel prices on May 11 and help state-run oil companies to curb mounting losses amid rising under-recoveries.

Even as Sensex extended losses for the eighth consecutive session and ended 0.3 per cent down at 18,469.36 points, the BSE Oil & Gas index outperformed other sectors and closed 1.2 per cent up at 9,782.10.

ONGC led the gainers and ended the day up nearly 5 per cent at Rs 309.35 on BSE, while BPCL rose 4 per cent to Rs 654.30, HPCL gained 2 per cent at Rs 389.45 and IOC climbed 1.8 per cent to Rs 348.05.

The eGoM, headed by finance minister Pranab Mukherjee, is expected to meet on May 11, a day after assembly polls, to review retail prices of petroleum products.

“The eGoM meeting is scheduled for May 11. The panel will review financial health of oil companies and contemplate whether price of petroleum products needs to be revised,” said a senior government official on the condition of anonymity.

The range of price hike is not known at the moment. However, there are reports that it could be in the range of Rs 2 to Rs 4 for a litre of diesel and Rs 3 for a litre of petrol.

The meeting comes in the wake of the Reserve Bank of India emphasising the need to raise fuel prices, following a spurt in global oil prices, to ensure that the fiscal deficit is contained within the projected level of 4.6 per cent of GDP in 2011-12.

The ministers are also likely to discuss raising liquefied petroleum gas (LPG) prices.

Oil marketing companies such as IOC, HPCL and BPCL are likely to revise the price of petrol, which is a deregulated product.

The desired increase in the retail price of petrol is up to Rs 8 a litre. The retail price of petrol is benchmarked at $100 for a barrel of crude oil. Since January, shares of IOC, BPCL and HPCL have outperformed the market, falling only 1-2 per cent, when the BSE Oil & Gas index fell 7.7 per cent and Sensex lost 10 per cent.

“We are expecting some kind of price hike in the next week’s eGoM meet, but the extent of likely fuel hike will not be enough to completely wipe out their growing losses. These OMCs have been bleeding in the past few years, which is why investors are cautious in investing in OMCs,” said Jagdish Meghnani, analyst with Alchemy Share & Stock Broker.

IOC, BPCL and HPCL are losing Rs 16-18 a litre on diesel, Rs 8-10 a litre on petrol, Rs 29 a litre on kerosene and Rs 330 per 14.2 kg of LPG cylinder, said Priyank Chandra, analyst with Dolat Capital.

Even as crude oil prices hovered around $110 a barrel in the past few months due to unrest in West Asia and North Africa, the state-owned oil firms were not allowed to raise prices of diesel and petrol due to assembly elections in five states. According to a report, in 2010-11, the three OMCs have lost Rs 78,202 crore in revenue while the government provided a compensation of Rs 20,911 crore.

The Indian crude oil basket stood at $120.04 a barrel on Tuesday. The three OMCs are estimated to incur a loss of Rs 1,80,208 crore for selling diesel, kerosene and domestic cooking gas below market price in 2011-12. Mukherjee has allocated Rs 23,650 crore for compensating oil companies in 2011-12.