The Sensex traded 122 points or 0.6 per cent higher at 20,086 while the broader Nifty jumped 31 points to 6,070 at 09.21 a.m.
State-owned oil marketing firms and upstream firms, which contribute to the fuel subsidy bill, saw strong buying interest. The BSE Oil and Gas index traded with over 4 per cent gains, extending yesterday's rally.
Oil India shares jumped 18 per cent to Rs 606 while IOC shares traded 17 per cent higher at Rs 369.20.
On the Nifty, ONGC was the top gainer, up 10 per cent to Rs 345.65. BPCL shares traded 5.5 per cent higher at Rs 417.90.
"This is something that the oil and gas sector had been waiting for some time... Lack of policy decisions led to underperformance of this sector. Hopefully these decisions will reach their logical conclusion, which means there is more upside to these stocks," Mehul Thanawala, VP (research) at JM Financial Institutional Securities told NDTV.