Shares of oil marketing companies—Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation rebounded from recent losses and jumped up to 5% on June 24 amid easing oil prices. Cooling tensions in West Asia after US President Donald Trump claimed of a ceasefire between Iran and Israel boosted hopes of the conflict nearing an end.
This optimism also triggered a sharp slump in crude prices, which tanked around 7% overnight, pushing the Brent crude price to a one week-low, easing input pressures for oil marketing companies.
In the previous session, Brent crude futures closed lower by $5.53 or 7.2% at $71.48 a barrel, while U.S. West Texas Intermediate crude (WTI) eased $5.53 or 7.2% to $68.51.
When crude oil prices rise, shares of oil marketing companies (OMCs) like HPCL, BPCL, and IOCL often come under pressure. This is because their input costs increase, but they may not be able to fully pass on the burden to consumers due to pricing regulations, which in turn squeezes their profit margins.
In contrast, oil exploration firms such as ONGC and Oil India tend to benefit from higher crude prices, as their earnings per barrel improve while operational costs remain largely stable. This dynamic typically boosts investor sentiment toward exploration companies, driving up their stock prices.
Going by the unstable condition in West Asia, brokerages have taken a rather cautious stance. Emkay Global, for instance, stated that as long as Brent crude averages around $75 per barrel, it does not foresee any downside risks to its earnings projections for the OMCs. In fact, continued strong earnings, a reduction in international LPG prices, and the receipt of LPG subsidies could provide meaningful upside for these companies.
Meanwhile, JM Financial has reiterated its ‘buy’ rating on ONGC and Oil India, highlighting that these companies are prime beneficiaries of elevated crude prices. The brokerage pointed out that current market valuations assume a crude realisation of $65 per barrel, and for every $1 increase above this level, the earnings per share (EPS) of ONGC and Oil India are expected to rise by 1.5–2%.
