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Oil Marketing Companies Tumble as Crude Prices Firm Up Amid US-Iran Tensions

Strategic Insights

— 1 min read

Fears of supply disruptions due to escalating tensions between the US and Iran have pushed Brent Crude Futures to a two-month high of $69.8, causing oil marketing companies HPCL and BPCL to drop 5.9% and 4.4%, respectively, on Thursday. In contrast, upstream companies Oil India and ONGC eked out modest gains, as rising crude prices generally benefit them by increasing their profit margins. Analysts warned that oil marketing companies, which buy crude and sell refined fuels, will face declining gross marketing margins due to the rising costs of crude.

Key Takeaways:

  • HPCL and BPCL shares dropped 5.9% and 4.4% respectively on Thursday, while Oil India and ONGC shares eked out modest gains.
  • Swarnendu Bhushan, co-head of Institutional Research at Prabhudas Lilladher, expects oil marketing companies to witness a decline in the near term due to rising crude oil prices.
  • Rising crude oil prices benefit upstream companies like ONGC and Oil India, as they sell crude at higher prices, resulting in better realisations and improved profit margins.
  • Sumit Pokharna, vice-president at Kotak Securities, believes that crude prices are not worrisome at current levels of around $68, but a significant jump in prices could occur if tensions escalate.
  • Analysts anticipate that oil prices will remain elevated in the near term due to geopolitical concerns, leading to further declines in OMC stocks and upside for upstream companies.
  • Oil India and ONGC are likely to benefit from the rising crude oil prices, while HPCL and BPCL will face pressure on their gross marketing margins.

Statistics:

  • Brent Crude Futures spiked 4.3% to a two-month high of $69.8 on Wednesday after US personnel were moved out of the Middle East.
  • US President Donald Trump stated that US personnel were being moved out of the Middle East, raising fears that escalating tensions with Iran could disrupt supply.
  • Crude prices retreated 0.8% to $69.23 on Thursday.
  • Analysts said oil prices are anticipated to remain elevated in the near term, with current levels of around $68.
  • Oil marketing companies HPCL and BPCL dropped 5.9% and 4.4% respectively on Thursday.
  • Oil India and ONGC eked out modest gains, with shares rising 3.2% and 5.1% during the day.

Sources:

  • Swarnendu Bhushan, co-head of Institutional Research at Prabhudas Lilladher
  • Sumit Pokharna, vice-president at Kotak Securities
  • "Brent Crude Futures"

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