Oil Marketing Companies (OMCs) Shares Plunge Amid Middle East Tensions

On March 9, shares of oil marketing companies (OMCs) in India experienced a sharp decline in trade due to the ongoing tensions in the Middle East, leading to a significant spike in international oil prices. The price of crude oil breached the $115 per barrel mark, causing a 7% drop in shares of Bharat Petroleum to Rs 328.15, a 2% fall in shares of Indian Oil to Rs 168.1, and a 6.7% decline in shares of HPCL to Rs 378.1.

International brokerage UBS has downgraded BPCL and Indian Oil Corp to 'neutral' with a target of Rs 365 and Rs 175, respectively, and cut HPCL rating to 'sell' with a target of Rs 340. The brokerage has also lowered FY27 profit forecasts by 19% for Indian Oil Corporation, 15% for Bharat Petroleum Corporation Limited, and 46% for Hindustan Petroleum Corporation Limited, citing weaker marketing margins.

According to UBS, the risk to oil prices remains skewed to the upside, with the potential for Brent crude to breach $90 a barrel and potentially even $100 a barrel in the event of a prolonged conflict or attacks on energy infrastructure. The brokerage estimates that a $5 per barrel increase in crude, if not passed on to consumers, could wipe out roughly half the profits of Indian OMCs by eroding marketing margins.

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Emkay Global noted that OMCs' production is not yet affected due to 30-35 days of crude oil stocks along with 20-30 days of products. However, extension of the Hormuz blockade will impact refining runs and final supplies ahead.

The sharp hike in oil prices and refining cracks has led to a decline in integrated auto-fuel margins, from $20-28/bbl in Q3FY26 to -$6.5/bbl currently. Emkay Global estimates that OMCs are likely to see better EBITDA QoQ in Q4, on lag in RTP accounting, higher core GRMs, and potential inventory gains of $5-6/bbl.

Oil markets have a long history of reacting sharply but often disproportionately to geopolitical conflict, with prices surging well beyond the scale of actual supply disruptions before eventually retreating. The Strait of Hormuz remains one of the most critical chokepoints in the global energy trade, handling nearly 20 million barrels per day (mb/d), which is nearly one-fifth of global oil production.