OMC Shares Decline by up to 5% as Crude Oil Prices Surge; ONGC, Oil India Rally

Shares of India’s state-run oil marketing companies (OMCs) -Hindustan Petroleum Corporation Ltd (HPCL), Bharat Petroleum Corporation Ltd (BPCL), and Indian Oil Corporation (IOC)- fell sharply on Wednesday, sliding up to 5% intraday, after a 4% surge in international crude oil prices raised concerns over their marketing margins.

HPCL dropped 5.19%, BPCL declined 4.24%, and IOC was down 1.43% on the NSE. The fall comes as Brent crude futures rose above $82 per barrel, driven by expectations of tight supply after OPEC+ extended voluntary output cuts and US inventory data showed a drawdown.

Margin Woes Surface Amid Price Freeze

The uptick in crude prices poses a margin risk for OMCs, which have not been able to pass on the rising input costs to consumers due to retail fuel price freezes. This could compress marketing margins in the near term, especially for petrol and diesel.

Analysts note that with fuel prices unchanged in India despite volatility in global crude benchmarks, OMCs face increased under-recoveries. This is particularly relevant given the ongoing political sensitivity around inflation, which limits the scope for retail price adjustments.

Contrasting Fortunes: ONGC, Oil India Benefit

While refiners felt the heat, upstream oil companies witnessed buying interest. ONGC and Oil India-which benefit from higher crude prices due to their exploration and production operations gained up to 3% during the session. ONGC rose 0.16%, while Oil India advanced 0.83%.

This inverse movement reflects the classic divergence in performance between downstream and upstream oil sector participants during periods of rising crude prices. Upstream companies typically enjoy windfall gains in such environments, bolstering profitability.

Sector Outlook: Volatility to Persist

The oil & gas sector remains sensitive to global price movements and geopolitical developments. Analysts expect continued volatility as markets weigh demand concerns from China against supply-side constraints.

In the near term, brokerage firms caution against aggressive positioning in OMC stocks given the lack of pricing power and potential inventory losses if crude prices remain elevated. However, a softening in crude or revision in domestic fuel prices could provide a reversal trigger.

Conclusion: Crude Dynamics Reshape Stock Momentum

The sharp divergence in stock performance of OMCs versus upstream oil producers underscores the influence of crude oil dynamics on India’s energy sector. While HPCL, BPCL, and IOC face pressure from elevated input costs, ONGC and Oil India stand to benefit from favourable pricing trends. Investors are likely to remain watchful of international crude movements, policy cues, and margin commentary in upcoming earnings announcements.

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