HPCL to IOC: OMC stocks fall up to 3% as Brent crude oil prices reclaim $100/bbl

Shares of oil marketing companies (OMCs) fell up to 3% in Thursday's trading session after crude oil prices once again jumped to $100 per barrel amid the ongoing US-Iran war.

Hindustan Petroleum Corporation (HPCL) was the worst performer in the pack, with its share price declining more than 2.75% to ₹373.70. It was followed by Indian Oil Corporation (IOC), which slipped 2.33%, and Bharat Petroleum Corporation Limited (BPCL), whose stock fell 1.31% in trade today.

All three OMC stocks — HPCL, IOC and BPCL — have fallen between 11% to 15% in a month.

Crude oil prices on a boil!

Crude oil prices surged more than 10% on Thursday, with Brent crude surging to the $100-per-barrel level, as traders doubted that the release of government reserves would be sufficient to counter the severe supply disruption triggered by the ongoing conflict in the Middle East.

Meanwhile, West Texas Intermediate climbed $96 per barrel, even after the International Energy Agency announced the largest emergency release of crude reserves in its history.

The IEA stated on Wednesday that its 32 member countries would release 400 million barrels of oil from strategic reserves, marking the biggest coordinated drawdown since the agency was created in the aftermath of the 1973 oil embargo.

How are crude oil prices affecting OMCs?

According to Choice Institutional Equities, the rising crude oil prices erode margins for OMCs, weighing on earnings.

At the current price level, the marketing margin turns negative for OMCs, cautioned Choice Broking.

Auto-fuel gross marketing margins (GMM) of oil marketing companies come under pressure if Brent crude remains above roughly $70 per barrel, as these companies typically earn their historical margin of about ₹3.5–4 per litre when Brent is around the $70.

“For every USD 1/bbl rise in crude price, OMCs' auto-fuel GMM declines by INR 0.55/ltr (assuming no change in retail petrol/diesel price and excise duty on petrol/diesel) and drags down their consolidated EBITDA by 7–9%, with HPCL the worst hit given its highest leverage to the marketing business,” said JM Financial.

The brokerage has assigned a ‘reduce’ rating to all three oil PSU stocks.

Disclaimer: This story is for educational purposes only. Please consult with an investment advisor before making any investment decisions.