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Crude oil prices briefly slipped below the $90-per-barrel mark for the first time since August, raising hopes of improved profitability for India's oil marketing companies (OMCs), including Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL).
Brent crude prices dropped below $90 per barrel during Tuesday's trading session, November 10, before recovering above the psychological level. The decline came after US President Donald Trump indicated that further military action against Iran was unlikely, raising expectations of a possible diplomatic resolution to the conflict and normalisation of energy supplies through the Strait of Hormuz.
The correction in crude prices has strengthened investor sentiment towards OMC stocks. HPCL, BPCL and IOC shares have gained between 10% and 13.5% so far in November, benefiting from expectations of lower crude procurement costs and improved marketing margins.
According to Seema Srivastava, Senior Research Analyst at SMC Global Securities, falling crude oil prices below $90 per barrel act as a powerful tailwind for Indian state-owned refiners such as BPCL, HPCL and IOC.
She said lower crude procurement costs can widen marketing margins and improve gross refining margins (GRMs), provided domestic fuel prices remain relatively stable. Cheaper crude can also ease working capital requirements, reduce the fiscal burden of under-recoveries on subsidised LPG and help control inflation.
Additionally, lower oil prices can support the Indian rupee, stimulate fuel demand and improve the broader macroeconomic environment.
However, Srivastava cautioned that these benefits are not guaranteed. If crude prices fall because of sluggish global demand, refining margins could come under pressure. Similarly, if the government directs OMCs to pass on the benefits of lower crude prices to consumers through retail fuel price reductions, the improvement in profitability could be limited.
Rapid declines in crude prices can also result in inventory losses as companies may have to account for the lower valuation of crude and petroleum products purchased at higher prices.
Despite the positive impact of lower crude oil prices, market experts believe investors should avoid aggressive buying in OMC stocks after their recent rally.
Sugandha Sachdeva, Founder of SS WealthStreet, said the sharp correction in crude oil prices has emerged as a significant positive trigger for Indian OMCs. However, with these stocks already rallying nearly 10–15% in November, much of the near-term optimism appears to have been factored into their prices.
She noted that a sustained decline in Brent crude towards $80 per barrel could provide further support to OMC profitability and earnings prospects. However, investors should not assume that geopolitical tensions have completely subsided.
Sachdeva cautioned that the possibility of renewed US-Iran tensions cannot be ruled out, as a breakdown in diplomatic efforts could trigger another sharp rebound in crude oil prices. Such a reversal could lead to profit booking in OMC stocks, particularly after their recent gains.
She also highlighted that the benefits of lower crude prices are neither immediate nor uniform. Inventory losses on crude purchased at higher prices, fluctuations in refining margins and changes in domestic retail fuel pricing could offset some of the benefits arising from cheaper crude.
In a similar vein, Srivastava of SMC Global Securities believes investors should maintain a 6–12-month investment horizon and closely monitor crude oil price movements, gross refining margins and government pricing policies rather than reacting to single-day market movements.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
Vaamanaa covers business and stock market news. Started in 2020, she has been producing news on digital platforms for over 4.5 years now. She writes on markets, commodities, IPOs, and industry. She has worked for news channels like Jagran New Media and Business Insider India. You can reach out to her at vaamanaa.sethi@htdigital.in.
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