Shares of OMCs fall, upstream oil cos gain on crude rebound

Mumbai: Shares of oil marketing companies (OMCs) Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL) tumbled 4-6% on Thursday, while upstream companies Oil India and ONGC closed higher after global crude prices firmed up, fuelled by heightened tensions between the US and Iran.

HPCL and BPCL dropped 5.9% and 4.4%, respectively, on Thursday. Oil India and ONGC eked out modest gains after gaining as much as 5.1% and 3.2% during the day.

"Rising crude oil prices are expected to put pressure on the gross marketing margins of oil marketing companies like HPCL and BPCL," said Swarnendu Bhushan, co-head of Institutional Research at Prabhudas Lilladher. "These companies are also trading at expensive valuations and are likely to witness a decline in the near term."

Upstream companies like ONGC and Oil India benefit from rising crude oil prices as they sell crude - higher prices mean better realisations and improved profit margins. In contrast, oil marketing companies such as HPCL and BPCL, which buy crude and sell refined fuels, see their costs rise when prices rise.

Brent Crude Futures spiked 4.3% to a two-month high of $69.8 on Wednesday after US President Donald Trump said US personnel were being moved out of the Middle East, raising fears that escalating tensions with Iran could disrupt supply. Prices retreated 0.8% to $69.23 on Thursday.

"The key reason for the increase in crude oil prices is the escalating geopolitical tensions between the US and Iran, which may lead to supply disruptions," said Sumit Pokharna, vice-president at Kotak Securities.

Pokharna said crude prices are not worrisome at current levels of around $68; however, if tensions escalate, there could be a significant jump in prices.

Analysts said crude oil prices are anticipated to remain elevated in the near term, given the geopolitical concerns, which could lead to further declines in OMC stocks and upside for upstream companies like Oil India and ONGC.