Oil and Gas Shares Plummet Amidst Spike in Crude Oil Prices on Escalation of US-Iran Tensions
Oil & Gas Stocks Plummet as US-Iran Tensions Escalate
The Indian stock market witnessed a sharp downturn on Monday, with the Nifty Oil & Gas index declining 1.6%. The index's constituents traded in the red, with Chennai Petroleum Corporation shares leading the pack with a fall of 3.2%.
The decline was attributed to the surge in crude oil prices, which jumped as efforts to end the US-Israeli war on Iran appeared to have stalled. A nuclear power plant in the United Arab Emirates came under attack, and US President Donald Trump is expected to discuss military options on Iran. As a result, Brent crude futures rallied 1.91% to $111.35 a barrel, while US West Texas Intermediate crude was at $107.81 a barrel, up 2.27%.
The rising crude oil prices have increased input costs for oil refiners, exerting pressure on their margins. This has led to a fuel price hike, with the state-run OMCs increasing petrol and diesel prices by ₹3 per liter each last week. The hike marked the first fuel price increase in four years and came amid a nearly 50% jump in global crude oil prices over the same period.
Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
| Company | Decline in Nifty Oil & Gas Index |
|---|---|
| Chennai Petroleum Corporation | 3.2% |
| Indian Oil Corporation Ltd | 2.5% |
| Bharat Petroleum Corporation Ltd (BPCL) | 2.5% |
| Hindustan Petroleum Corporation Ltd (HPCL) | 2.5% |
| Adani Total Gas | 2% |
| Mahanagar Gas | 2% |
| GAIL (India) | 2% |
| Indraprastha Gas | 1% |
| Petronet LNG | 1% |
| Reliance Industries | 1% |
Analysts believe that the recent fuel price hike remains inadequate relative to prevailing losses but reduces daily under-recoveries of OMCs by ₹100 crore. On a per-liter basis, integrated under-recoveries post-price hikes stand at ~₹13, which implies a Delhi equivalent RSP hike of ~₹15.
The sharp increase in international LPG prices has further aggravated losses, with daily losses on LPG estimated at ~₹200 crore-₹400 crore. Emkay Global Financial Services Ltd maintained a cautious stance on OMC stocks and CGD stocks amid the volatile and elevated pricing environment.
The company retained an 'Add' rating on Indian Oil Corporation, BPCL, HPCL, Indraprastha Gas, and Mahanagar Gas shares.
Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline
Investor Takeaway
Oil and gas shares are likely to remain volatile due to escalating US-Iran tensions.
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