The spike followed US President Donald Trump’s address to the nation, which reignited concerns of a prolonged Middle East conflict. This comes after a brief phase of easing tensions had pulled oil prices below $100 per barrel.
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.
Donald Trump said American forces would “finish the job” in Iran soon, noting that “core strategic objectives are nearing completion”. He added that while the US is now “totally independent of the Middle East”, it remains involved to support its allies. “We don’t have to be there. We don’t need their oil. We don’t need anything they have. But we are there to help our allies,” he said.
Trump reiterated that Iran’s “navy is gone” and its air force is “in ruins”, claiming the country’s leadership has been wiped out. He also said joint strikes had “obliterated” Iran’s nuclear programme and warned of further action, stating that if Tehran makes any move towards rebuilding, the US would respond with heavy missile strikes. He added that Iran’s ability to deploy missiles and drones has been significantly weakened.
Trump’s remarks suggest that the US may try to conclude the conflict within the next two to three weeks and have heightened investor concerns over potential attacks on Iran’s power and crude infrastructure if no deal is reached.
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Earlier this month, international brokerage firm UBS downgraded the three counters following mounting uncertainty over rising crude oil prices amid the US-Israel-Iran war. 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% to 45% and 22% to 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 $105 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.
Even if the conflict eases in the near term, oil prices may not soften quickly. Ambit Institutional Equities, in its recent report, said that crude is likely to remain elevated, with $80 per barrel emerging as the new normal for Brent. The brokerage attributed this to infrastructure damage, persistent geopolitical risk premiums, and ongoing inventory restocking.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times.)