Shares of oil marketing companies (OMCs) rallied up to 5% on Monday, 15 June, amid easing crude oil prices following the announcement of a peace deal between the US and Iran.
The three state-run OMCs—Hindustan Petroleum Corporation Ltd (HPCL), Bharat Petroleum Corporation Ltd (BPCL), and Indian Oil Corporation Ltd (IOC)—extended their winning streak to a second consecutive session, reacting positively to a sharp decline in crude oil prices. The rally also helped the stocks recover a portion of their recent losses.
HPCL shares jumped as much as 5.5% to ₹410 apiece, while BPCL gained 4.8% to ₹316.75 and IOC advanced 5.4%.
US-Iran peace deal sends crude oil prices to multi-month lows
Extending their losing streak for a second straight session, crude oil prices fell to multi-month lows after the US and Iran reached a peace agreement aimed at ending the Middle East conflict and reopening the Strait of Hormuz by the end of the week.
Brent crude futures declined $4.33, or nearly 5%, to $83.00 a barrel, while US West Texas Intermediate (WTI) crude fell $4.54, or 5.35%, to $80.34 a barrel. Both benchmarks dropped to their lowest levels since March 10 after tumbling more than 3% in the previous session.
The Strait of Hormuz will be “opening” on Friday following the signing of the agreement with Iran, US President Donald Trump said in a post on Truth Social. The deal is expected to pave the way for 60 days of negotiations on Iran’s nuclear programme.
The remarks came after Trump had delayed planned military strikes and warned that the US could target Iran’s oil infrastructure.
Iran’s Supreme National Security Council confirmed on Sunday that Tehran had finalised a memorandum of understanding, stating that all military operations across all fronts, including Lebanon, would cease “immediately and permanently.”
Neither side released the full text of the agreement, though its broad contours had circulated for several days. Even while celebrating the breakthrough, Trump told The New York Times that if a separate nuclear agreement with Iran is not reached, military action against Tehran could resume, according to a Bloomberg report.
This is not the first time that hopes of a peace agreement have emerged. Similar expectations have surfaced more than a dozen times over recent months, but none have materialised into a final deal.
The nearly four-month conflict in the region kept energy prices elevated, increasing the cost of living across major economies and prompting several central banks to raise interest rates.
The world has lost millions of barrels of oil and gas supply since the closure of the Strait of Hormuz, a key chokepoint that handles roughly one-fifth of global oil and liquefied natural gas shipments, for more than three months.
Impact on OMCs
A decline in crude oil prices generally benefits oil marketing companies, as crude oil accounts for the majority of their input costs. Lower crude prices reduce the overall cost of refining and fuel production.
If petrol and diesel retail prices are not cut in proportion to the decline in crude prices, OMCs can retain higher marketing margins, directly boosting profitability.
Softer crude prices also help reduce India’s import bill and ease the companies’ working capital requirements, resulting in stronger cash flows. Moreover, when OMCs hold inventory purchased at lower prices, they can benefit from inventory gains if refined products are sold at relatively higher prevailing market prices.
Disclaimer: We advise investors to check with certified experts before making any investment decisions.
