Shares of oil marketing companies (OMCs) rallied in trade on Thursday, June 26, as crude oil prices sank to levels last seen before tensions in the Middle East, between Israel and Iran, flared up.
Brent crude futures were around to $68.21 a barrel, while U.S. West Texas Intermediate (WTI) crude was trading at $65.48 a barrel.
At 1.30 p.m., shares of Bharat Petroleum or BPCL were quoting Rs 325.3 while Hindustan Petroleum's shares were trading at Rs 415.1, both up 1.8 percent, and Indian Oil's stock was commanding Rs 145.06, higher by 2.2 percent. Over the past five sessions, since the ceasefire announcement, shares have gained up to 6 percent.
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Over the past month, shares of downstream oil marketing companies (OMCs) such as Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum came under selling pressure as crude prices boiled.
When crude oil prices rise, shares of oil marketing companies often come under pressure, as their input costs increase but they may not be able to fully pass on the hike to consumers due to pricing regulations or demand concerns - impacting their profit margins.
On the other hand, oil exploration companies such as ONGC and Oil India benefit from higher crude prices, as they earn more per barrel produced while their costs remain largely fixed. As a result, investors expect better earnings from exploration firms, leading to gains in their stock prices.
Earlier, Emkay Global noted that until the average of Brent crude prices stands at $75/bbl, the brokerage does not see any downside to its earnings estimates on HPCL, BPCL and IOCL. The continuation of the current earnings run-rate, reduction in international LPG prices, and payment of LPG subsidy is likely to offer a material upside potential for OMCs.
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