BPCL, HPCL to IOC: OMC stocks fall up to 5.5% on sharp rebound in crude oil prices

OMC stocks under pressure: Shares of oil marketing companies (OMCs) fell up to 5.5% on Wednesday, 8 July.

The three state-run OMCs—Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL), and Indian Oil Corporation (IOC)—saw their share prices retreat, giving up recent gains as escalating tensions in the Middle East triggered a sharp rebound in crude oil prices, prompting investors to book profits.

HPCL shares fell as much as 5.5% to ₹384.20 apiece, while BPCL declined 4.7% to ₹299.40 and IOC slipped 3.5% to ₹137 apiece.

Fresh tensions in the Middle East lift crude oil prices

Crude oil prices extended their gains on Wednesday after surging in the previous session following U.S. strikes on Iran. The military action came after a series of recent attacks on vessels transiting the Strait of Hormuz, including a Qatari LNG carrier and a Saudi oil tanker, with the U.S. accusing Iran of carrying out the attacks.

Before the strikes, the U.S. had revoked a license that authorized the sale of Iranian oil under the interim agreement.

In retaliation, Iran reportedly resumed attacks in the region, launching missiles at U.S. military sites in Bahrain and Kuwait. Both sides have accused each other of violating the ceasefire agreement.

U.S. President Donald Trump later said the interim agreement with Iran was "over" but added that he would allow diplomatic talks to continue. His remarks raised concerns that the broader conflict in the Middle East could intensify again.

After closing nearly 3% higher in the previous session, Brent crude futures climbed another 6%, or $4.15 per barrel, to an intraday high of $78. WTI crude futures also gained 6%, or $4.28 per barrel, to touch an intraday high of $74.74.

The latest rebound comes after both crude benchmarks had fallen back to pre-war levels earlier this month as shipping traffic through the Strait of Hormuz improved, prompting major Middle Eastern oil producers to raise output.

As part of the earlier interim agreement, Iran and the United States had agreed to allow ships to pass through the Strait of Hormuz without transit charges for 60 days. However, Tehran maintained that it would control vessel routes and later impose passage fees.

How does a rise in crude oil prices affect OMCs?

A rise in crude oil prices generally puts pressure on OMCs such as BPCL, HPCL, and IOC, as crude oil accounts for the bulk of their input costs. Higher crude prices increase the cost of refining and fuel production, squeezing marketing margins if retail fuel prices are not revised accordingly.

In May, OMCs increased petrol and diesel prices in multiple phases to offset elevated global crude oil prices.

Meanwhile, higher crude prices also increase India's import bill and raise the working capital requirements of OMCs, potentially affecting their cash flows. Moreover, companies holding inventory purchased at elevated prices face the risk of inventory losses if retail fuel prices or product realizations fail to keep pace with rising input costs.

Disclaimer: We advise investors to check with certified experts before making any investment decisions.