Shares of India’s oil marketing companies (OMCs) recouped early losses and came off their day's lows on June 23 after Brent crude prices retracted below $78 per barrel.
Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum all slipped into the red in early trade, as the market reacted to a sharp rise in crude prices following US airstrikes on Iranian nuclear sites over the weekend. Brent crude surged by 2% to trade over $78 a barrel, while WTI crude rose 1.7% to $75.
However, by mid-trade these stocks recovered as oil prices cooled down.
The situation intensified after Iran’s parliament approved a proposal to close the Strait of Hormuz, a strategic chokepoint through which nearly 20% of global oil and liquefied natural gas (LNG) flows. The threat of disruption to this key shipping route sent jitters through global energy markets, resulting in a spike in crude prices.
When crude prices rise sharply, input costs for oil marketing companies swell, but regulated pricing structures often restricts them from fully passing on the hike, thereby squeezing margins and profitability.
Oil markets have been in a frenzy in the month so far amid escalating tensions in West Asia. At the center of this lies the Strait of Hormuz, a vital trade route for nearly a fifth of global oil trade. Iran's threat to close the Strait’s has driven crude prices higher and shaken investor sentiment globally.
On the back of this, shares of oil marketing companies have also suffered losses. While shares of HPCL lost nearly 5% in the last one month, those of BPCL and IOCL are down 2% and 4%, respectively.
