Oil and gas stocks rallied on Thursday despite a sharp rise in global crude oil prices, with the Nifty Oil & Gas index gaining nearly 1%. According to reports from Livemint, Mahanagar Gas emerged as the top performer, rallying nearly 3%, followed by Petronet LNG, Reliance Industries, Indraprastha Gas, GAIL (India), Adani Total Gas, Hindustan Petroleum Corporation (HPCL), and Bharat Petroleum Corporation (BPCL), with each stock gaining more than 1%. The rally came even as crude oil prices climbed sharply in international markets after fresh US strikes on Iran dampened hopes of a full reopening of the Strait of Hormuz. As per MarketWatch, the State Street Energy Select Sector SPDR ETF XLE rose 1.4%, while the broader stock market fell, though the gain appeared relatively muted compared to other sectors facing potential collateral damage.
Oil prices extended their surge Thursday as Donald Trump announced the US ceasefire with Iran was over and ordered fresh strikes against the country following attacks on ships in the Strait of Hormuz. According to Reuters, the escalation came after Iranian forces attacked a US-flagged vessel in the strategic waterway, prompting the US president to respond with military action. The State Street Energy Select Sector SPDR ETF XLE rose 1.4%, while the broader stock market fell, though the gain appeared relatively muted compared to other sectors facing potential collateral damage. As per MarketWatch, futures for U.S. benchmark West Texas Intermediate crude climbed 4.5% in recent afternoon trading, while gasoline futures hiked up 5.3%.
While oil companies benefited from the rally, other sectors faced significant headwinds from the escalating US-Iran tensions. As per MarketWatch, the U.S. Global Jets ETF JETS dropped 2.2% Wednesday, with major airlines declining more than energy sector gains - American Airlines Group's stock down 3.9%, United Airlines Holdings off by 1.6%, and Delta Air Lines' stock down 1.5%. The iShares U.S. Home Construction ETF ITB sank 4%, with home builders facing concerns that higher mortgage rates would make new homes less affordable to potential buyers. Home Depot shares were down 2.6% and Lowe's Companies lost 3.6%. The 10-year Treasury yield rose 3 basis points to 4.58%, putting it on track for its highest close since the postwar peak yield of 4.66% reached on May 19.
Oil Marketing Companies (OMCs) are likely to post inventory and marketing losses due to higher crude prices during April and May, weighing on their Q1 results, according to Livemint reports. In contrast, upstream companies are expected to benefit from stronger realizations amid higher crude oil and natural gas prices, supporting robust year-on-year EBITDA growth during the quarter. Kotak Institutional Equities expects consolidated EBITDA of Reliance Industries to rise 8.4% YoY and 5.4% QoQ, driven by O2C business, while anticipating good results for GAIL India and higher spot volumes to offset Strait of Hormuz disruption for Petronet LNG.
With the full impact of price hikes not reflecting in Q1, Kotak Institutional Equities expects weak results for Indraprastha Gas and Mahanagar Gas, as reported by Livemint. The brokerage firm anticipates mixed performance across the sector, with some companies benefiting from higher realizations while others face margin pressures from elevated input costs. The divergent performance expectations reflect the varied business models and operational exposure of different oil and gas companies to current market conditions. As noted by RBC Capital, the percentage of the world's urea fertilizer that is exported out of the Middle East - around 35% to 40% prewar - was higher than the percentage of the world's oil that the region exports, with fertilizer makers like CF Industries Holdings up 1.8% and Nutrien's stock gaining 2.2% amid shipping disruption concerns.
