HPCL was the top gainer, rallying 6% to its day’s high of Rs 345 on the BSE. BPCL and IOCL shares gained 3.5% each.
The rally also reflects a technical rebound, with the stocks witnessing value buying after slipping into oversold territory in recent sessions. HPCL and BPCL shares are down 21% in the last 1 month, while IOCL has slipped 15% over the same period.
In the latest trade, Brent crude futures fell by $1.24, or 1%, to $107.41 per barrel, while U.S. West Texas Intermediate (WTI) crude declined by $1.24, or 1.3%, to $94.90.
To contain the spike in oil prices, U.S. Treasury Secretary Scott Bessent said Washington could consider lifting sanctions on Iranian oil currently stranded on tankers. He also indicated that another release from the U.S. Strategic Petroleum Reserve remains an option.
In a joint statement on Thursday, Britain, France, Germany, Italy, the Netherlands and Japan said they were ready to support efforts to ensure safe passage through the Strait, a route that handles about 20% of global oil and LNG flows.
Downstream stocks usually come under pressure when oil prices rise as their input costs increase sharply while their ability to pass these costs on remains limited. These companies buy crude at higher prices, refine it, and sell the end products, but pricing is often regulated, restricting full cost pass-through to consumers. As a result, margins get squeezed when product prices do not rise in line with crude.Prices had surged on Thursday after Israel attacked Iran’s South Pars gas field, the country’s largest, which is critical for domestic supply as well as exports to Iraq and Turkey. Iran retaliated by targeting Qatar’s Ras Tanura Industrial Complex, damaging QatarEnergy’s gas infrastructure. The company’s CEO said repairs could take up to five years and result in annual revenue losses of $20 billion.
Meanwhile, shipments through the Strait of Hormuz have been disrupted. The route accounts for about 20% of global oil and LNG supply. Production losses in the Middle East are estimated at 7 million to 10 million barrels per day, equivalent to 7% to 10% of global demand.
Should you buy these stocks?
Earlier this month, international brokerage firm UBS downgraded the three counters following mounting uncertainty over rising crude oil prices amid US, Israel-Iran war. The international brokerage revised target prices to Rs 175 for IOCL from Rs 190, Rs 365 for BPCL from Rs 425, and Rs 340 for HPCL from Rs 540.
Rising geopolitical tensions and the recent surge in crude prices have created uncertainty around earnings for Indian state-owned oil marketing companies, drawing parallels with the oil market disruption seen in 2022, UBS analysts said.
Given their higher dependence on fuel marketing, these companies also face pressure when profits shift from marketing to refining. Reflecting this, marketing margin estimates for FY27 and FY28 have been cut by 43-45% and 22-26% respectively.
From a market standpoint, the biggest losers are likely to be oil refiners, downstream companies and gas players. Elara Securities notes that beyond $110 per barrel, the buffer begins to wear thin.
Oil marketing companies such as HPCL, BPCL and Indian Oil are the most vulnerable, the domestic brokerage said in a note earlier this week. Higher gross refining margins may offer some cushion, but they are unlikely to fully offset the hit from shrinking retail margins and rising LPG losses. At current Brent levels of around $100 per barrel, earnings could decline sharply, in the range of 90% to 190%, unless there is a fuel price hike, tax cuts or higher LPG subsidies.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)