However, oil remained slightly above $100 a barrel on Tuesday after plunging nearly 10% in the previous session, as Iran denied holding any talks with the United States to end the Gulf conflict, countering Trump’s assertion that a deal could be close. Local news agencies also reported fresh strikes on energy infrastructure on Tuesday.
Brent crude futures rose $1.06, or 1.1%, to $101 a barrel at 0001 GMT. U.S. West Texas Intermediate (WTI) gained $1.58, or 1.8%, to $89.71.
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.
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.
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Earlier this month, international brokerage firm UBS downgraded the three counters, citing mounting uncertainty over rising crude oil prices amid the US-Israel-Iran conflict. The 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, by 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)