Shares of Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL) and Indian Oil Corporation (IOC) have seen a notable decline recently, falling up to 18% in one month. This came as oil prices soared to multi-month highs since the outbreak of the war earlier this month after US and Israel’s military strikes on Iran killed its former supreme leader Ayatollah Khamenei, followed by massive retaliation from Tehran.
The Strait of Hormuz, a critical chokepoint for trade, effectively remains shut to traffic as Iran attacks any ship trying to pass through, leading to the rally in oil prices. The narrow 33-kilometre-long waterway connects the Persian Gulf and the Gulf of Oman, and carries over 20% of the world’s oil and gas shipments.
Brent crude futures gained more than 1% to trade at $104.5 per barrel, while WTI crude rose over 0.4% to $99.11 per barrel, as seen at 8.25 am. The sharp surge comes despite bleak assurances from the US administration.
The US President Donald Trump-led administration plans to announce that several countries have agreed to form a coalition to escort ships through the Strait of Hormuz, the Wall Street Journal reported. Trump meanwhile told the Financial Times that it would be very bad for the future of NATO if the allies did not help.
The war in the Middle East continues to escalate, with US President Donald Trump saying that the country may carry out additional strikes on Iran’s Kharg Island oil export hub “just for fun”.
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What lies ahead for oil prices
Global crude oil prices could rise to $120 per barrel in the short term and potentially reach $150 per barrel if the war extends over a month and geopolitical tensions continue in West Asia, said Kayanat Chainwala, Assistant Vice President at Kotak Securities.
“Any prolonged disruption through this trade will be bullish for crude oil and negative for other commodities, as it ignites inflation concerns and could delay interest rate cuts,” the analyst noted.
Global crude oil prices could surge to as high as $150 per barrel if the Strait of Hormuz remains closed for the next four to eight weeks, according to a report by Nuvama. However, it noted that such high price levels would likely trigger demand destruction and encourage alternative supply responses in the market.
The report highlighted that Asian economies are expected to be the most affected by the disruption. Around 13 mbpd of oil shipments to countries such as China, India, Japan and South Korea pass through the Strait of Hormuz.
The global crude market has entered a phase of heightened volatility in the last two weeks, driven primarily by the destruction of oil and gas assets amid the West Asia war, which has triggered a strong risk premium in prices, and tightening supply dynamics owing to the closure of the Strait of Hormuz, said Systematix Institutional Equities. “Meanwhile, elevated tanker freight rates and insurance premiums for vessels transiting high-risk zones have raised the cost of procurement significantly,” it added.
OMCs can face margin pressure, cash flow volatility: Moody’s Ratings
India’s state-owned oil marketing companies (OMCs) can face heightened margin pressure and cash flow volatility as global energy prices rise while domestic fuel prices remain largely unchanged, according to a report by Moody’s Ratings.
The agency said that the country’s three largest fuel retailers IOC, BPCL and HPCL will likely continue absorbing higher input costs stemming from elevated global crude and gas prices.
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