IOC, BPCL to HPCL: PSU oil stocks show resilience against rising crude oil prices

Shares of oil marketing companies (OMCs) showed resilience amid rising crude oil prices, losing only 1.5% even as Brent futures rallied almost 7% on Monday.

Bharat Petroleum Corporation (BPCL) shares emerged as the worst loser with a 1.55% decline, while Indian Oil Corporation Limited (IOCL) and Hindustan Petroleum Corporation Limited (HPCL) stocks shed less than 1% each.

The losses in these oil PSU stocks were capped as oil prices remained below $100 per barrel despite the spike. Moreover, OMCs are down 16-22% from pre-war levels, making analysts believe the worst is priced in.

OMC stocks are not falling sharply this morning because the market is treating the latest crude jump as a volatility event, not yet a new equilibrium, said Kalp Jain, Research Analyst at INVAsset PMS.

The second reason is policy cushioning. "India cut the special excise duty on petrol to ₹3 a litre from ₹13 and on diesel to zero on March 27. So the Street is assuming that if crude stays high, some mix of tax relief, delayed pass-through and price action will again soften the blow. That is why the morning reaction is cautious, not capitulative," he added.

Oil prices jump 7%

Globally, oil prices jumped as investors grappled with conflicting messages about the war in Iran and news that the Strait of Hormuz was closed again. In early Asian trading, Brent crude futures jumped about 7% to $96.85.

Iran has turned down fresh peace talks with the United States, according to its state news agency. This came just hours after US President Donald Trump said he was dispatching envoys to Pakistan for negotiations and warned of new strikes on Iran if it did not agree to his terms. Tensions escalated further after the U.S. claimed it had seized an Iranian cargo vessel attempting to breach its blockade.

Earlier, markets had reacted positively to Iran’s indication that it would reopen the Strait of Hormuz. Stocks and bonds rallied on Friday, while oil prices fell, as investors grew hopeful that the seven-week conflict— which had disrupted a key global route for crude and gas shipments—might be nearing an end.

OMC stocks outlook

The nearly two-month-long conflict in the Middle East that has blocked the Strait of Hormuz, a narrow passage accounting for 40% of India's crude imports, has impacted oil PSUs' margins as retail fuel prices have been frozen despite the spike in oil prices.

According to ICICI Securities, a natural floor for prices is $85-90/bbl, substantially higher than pre-war levels of USD 70/bbl. This is coupled with our assumption that the aforementioned disrupted capacity of ~3mb/d may only gradually come back on stream, tightening the demand-supply balance over the next 12-18 months and supporting GRMs, it said.

While product prices (petrol, diesel, ATF) are expected to remain strong due to product tightness, softened crude costs will allow retail marketing margins to turn positive while keeping GRMs elevated, it added.

The government’s previous excise duty cut—amounting to ₹10/litre on petrol and diesel—provides a buffer for crude price increases of up to $20/bbl, it said, adding that potential improvements in propane availability could moderate prices and help reduce LPG losses.

The brokerage said that OMCs are currently trading below their 20-year average P/E and P/B ratios, suggesting limited downside and high conviction for investors.

Meanwhile, Motilal Oswal Financial Services said that the breakeven oil price for MS/HSD marketing margins is at $85-90/bbl at mid-cycle GRMs; therefore, it believes OMCs still have room to run as margins normalise higher.

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