The big development on Monday morning is the sharp spike in crude oil prices. It skyrocketed nearly 20%, breaching the $100 a barrel mark. This huge spike in crude oil prices has put oil explorer stocks, oil marketing companies, and other related companies in the spotlight.
What’s causing the surge in oil prices?
The continued escalation in conflict between the US-Israel, and Iran is impacting crude oil supplies. Plus, Iran has targeted the oil refineries of Gulf countries. In a recent incident, Iran launched a fresh wave of missiles towards Israel’s Tel Aviv and the Negev desert, as well as US air bases in the region. This is also seen as a key negative sentiment-wise.
Referring to the spike in crude, Donald Trump’s Truth Social post stated that-
“Short-term oil prices, which will drop rapidly when the destruction of the Iranian nuclear threat is over, are a very small price to pay for the USA and world, safety and peace. ONLY FOOLS WOULD THINK DIFFERENTLY!”
Focus on oil marketing companies
Among the oil marketing companies, Hindustan Petroleum Corporation, Indian Oil Corporation, and Bharat Petroleum Corporation are the key stocks to watch. The sector will be impacted because they buy crude oil, and higher prices will eat up margins, pressuring profitability.
Companies like IOCL, BPCL, and HPCL are at high risk. In a research note, March 04, Nomura estimated that OMCs may start making losses if Brent crude exceeds $85 per barrel, as retail prices remain stable while input costs soar.
Upstream oil companies
On the other hand, stocks like Oil And Natural Gas Corporation, Vedanta, Oil India, and others will see a positive impact as higher crude prices will lead to higher realisations and profitability.
In its report last week, Nomura sees oil explorers as ‘clear winners’ due to higher average selling prices (ASPs) resulting from the spike in crude oil prices. Nonetheless, the brokerage house cautioned regarding the windfall taxes that the Indian government might impose if oil prices rise excessively.
Oil refiners
Reliance Industries is expected to benefit from a potential spike in Gross Refining Margins (GRMs), particularly if attacks on West Asia refining assets intensify.
Paint, tyre and aviation stocks
Paint and tyre stocks are going to be impacted as crude oil is a key raw material. As crude prices shoot up, the input costs for the paint and tyre industries spike significantly, leading to a drop in profit margins. Asian Paints, JK Tyre, Apollo Tyres, and MRF are some key stocks in focus.
Aviation companies are expected to experience an increase in fuel expenses, which is one of the highest costs for a carrier. The rise in crude oil will lead to a decline in profitability, impacting the sector in a negative way. InterGlobe Aviation and Spicejet are the two listed Indian airlines.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.