Shares of oil marketing companies (OMCs) surged on easing crude prices, with Indian Oil Corporation Ltd (IOC) rising 8.2%, Hindustan Petroleum Corporation Ltd (HPCL) gaining 9%, and Bharat Petroleum Corporation Ltd (BPCL) advancing 8.8%. The rally comes after Brent crude prices plunged over 13% following reports of a two-week ceasefire between the US and Iran.
Brent crude dropped by $14.84, or 13.6%, reaching $94.43 a barrel, while WTI decreased by $16.13, or 14.3%, to $96.82 a barrel as of 0023 GMT.
Declining crude prices provide significant advantages for downstream refiners, as they greatly lower raw material expenses and enhance gross refining margins (GRMs). The steep decline in oil prices has also alleviated worries about inflation and marketing losses, lifting sentiment for OMC stocks.
Analysts suggest that if crude prices stay at lower levels, there could be substantial improvement in margin expansion and earnings visibility for these firms in the near future.
The shift in stance happened just before Trump’s demand for Iran to reopen the Strait of Hormuz, a crucial route that carries 20% of the global oil supply, or face extensive attacks on its civilian infrastructure. “This will be a double-sided CEASEFIRE!” Trump wrote on social media. Earlier on Tuesday, he had warned that “a whole civilization will die tonight” if his demands were not met.
On the other hand, the ceasefire has a significant adverse effect on upstream oil companies such as ONGC and Oil India, both of which saw a 4% decline in their stock value.
Harshal Dasani, Business Head, INVasset PMS, said that for India, the implications are particularly significant given that over 40% of its crude imports are sourced from the Middle East. Any stabilisation in shipping lanes and freight costs directly alleviates imported inflation pressures, supports the rupee and enhances earnings visibility for oil-sensitive sectors such as aviation, paints, logistics and oil marketing companies, according to Dasani.
“That said, the development should be viewed as a temporary reprieve rather than a lasting solution. The ceasefire is limited in duration, safe passage remains conditional, and negotiations are still evolving. Market stability in the medium term will depend on whether this pause translates into a sustained and credible de-escalation,” said Dasani.
Technical Views
According to Rajesh Bhosale, Equity Technical and Derivative Analyst at Angel One, OMC were under pressure since last few weeks, and amidst positive development on the war front this space is showing traction ,we are seeing that the prices are reattempting to test 20dema and a short term bottom seems to be in place, one should maintain positive bias.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
