Shares of state-run refiners Hindustan Petroleum Corporation Ltd. (HPCL), Bharat Petroleum Corporation Ltd. (BPCL), and Indian Oil Corporation (IOC) are expected to remain under pressure following the recent spike in oil prices.
Crude rallied after fresh attacks on energy infrastructure by Israel and Iran intensified the ongoing conflict, which is now approaching its fourth week.
West Texas Intermediate (WTI) crude rose as much as 3.5% in early Asian trade on Thursday to near $99 per barrel. Brent crude, after an initial dip on Wednesday, rebounded to close near $110 per barrel and extended gains further to around $112, inching closer to the conflict peak of $120. US natural gas prices also climbed nearly 5% overnight.
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The escalation comes after Iran retaliated to an Israeli strike on the South Pars gas field by targeting Qatar’s Ras Laffan industrial city. While one missile reportedly struck the site and others were intercepted, the facility, which houses the world’s largest LNG production complex, has already remained shut since early this month.
Key energy assets in Iran, including South Pars and associated infrastructure at Asaluyeh, have also been impacted.
Despite the heightened tensions, upstream energy installations had largely avoided direct damage until recently, with earlier strikes limited in scope. Reports indicate that the US is cautious about further escalation targeting critical Iranian energy infrastructure.
Higher crude prices typically weigh on oil marketing companies such as HPCL, BPCL, and IOC, as rising input costs can compress margins. Sectors like paints are also impacted, given that nearly 50% of their raw material costs are linked to crude derivatives.
In contrast, upstream producers such as Oil and Natural Gas Corporation (ONGC) and Oil India stand to benefit from rising prices.
For every $1 per barrel increase in crude, their annual revenue could rise by ₹300 crore to ₹400 crore. However, the EBITDA of oil marketing companies could decline by ₹200 crore to ₹300 crore due to higher costs.
Brokerages cautious on the sector
Kotak Institutional Equities has reiterated its ‘Sell’ rating on HPCL, BPCL, and IOC, cutting price targets by up to 20%. Indian Oil’s target has been reduced to ₹100, BPCL’s to ₹240, and HPCL’s to ₹235.
HSBC has also turned more conservative, downgrading IOC, HPCL, and BPCL to ‘Hold’ while lowering both earnings estimates and valuation multiples.
At the same time, it maintained a ‘Reduce’ rating on ONGC, albeit with a higher price target of ₹240.
Despite the cautious stance from brokerages, analyst sentiment remains relatively positive, with a majority of coverage still carrying ‘Buy’ ratings across HPCL, BPCL, and IOC.
