U.S. President Donald Trump's latest comments on the conflict in the Middle East between Israel and Iran fanned prices of crude oil, sending the benchmarks surging almost two percent each. However, shares of domestic OMCs or oil marketing companies brushed off these concerns in early trade on Tuesday, June 17.
President Donald Trump called for the evacuation of Tehran, in comments that contrasted with earlier optimism that Israel’s war against Iran wouldn’t escalate into a wider conflict.
Trump’s early exit came just hours after he issued a dramatic warning on social media, calling for the immediate evacuation of Tehran. “Everyone should immediately evacuate Tehran!” he posted, fueling speculation over possible U.S. military involvement. Earlier, he had cautioned Iran to halt its nuclear ambitions before it was “too late.”
Brent crude prices jumped 1.8 percent to $74.51/bbl, while WTI (West Texas Intermediate) crude prices rallied 1.9 percent to $73.13/bbl.
However, domestic OMCs shrugged off fears, with Hindustan Petroleum, Bharat Petroleum and Indian Oil Corporation trading with mild gains at 9.25 am.
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When crude oil prices rise, shares of Indian oil marketing companies such as HPCL, BPCL, and IOC 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.
International brokerage UBS said while crude prices are up sharply, the OPEC's spare capacity of oil limits the upside to crude prices. Further, OMCs will see above normal margins for the quarter.
The possibility of crude prices spiking beyond the $80/bbl mark occurs if Iran is able to disrupt crude supply through the key Strait of Hormuz via which ~20 percent of global oil & LNG shipments takes place.
"The probability of this, though, is low; the Strait of Hormuz has never been blocked during earlier wars in the region, and its blocking is extremely unlikely this time as well, as US and Western countries are likely to take strong measures against any such disruptions given the huge risk it can pose to global oil and gas prices and, hence, inflation," said JM Financial.
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