Oil marketing companies (OMCs) are experiencing significant selling pressure as Brent crude futures rose to $109 per barrel in early Asian trade on Friday, with the latest move bringing crude prices to levels not seen since May, when they subsequently declined below $80 per barrel as geopolitical tensions eased. According to ET Now, oil prices showed some relief on Friday (September 11) but remained above the $100 per barrel mark for the third consecutive session, with Brent crude oil futures trading around $106 per barrel at the time of writing. The situation in West Asia has entered a critical phase as Iran-aligned Houthis seized control of Yemen's port of Mocha on Thursday, posing further threats to Red Sea traffic and adding to supply concerns through the Strait of Hormuz and attacks on tankers. The broader Indian stock market was under heavy selling pressure, with Sensex down 633 points (0.85%) to 74,269 and Nifty 50 falling 213 points (0.91%) to 23,265 as of 9:25 am, while market breadth was sharply negative with 2,227 shares declining against 719 advances. Business Standard reports that PSU OMC shares declined significantly, with Hindustan Petroleum falling 2.43%, Bharat Petroleum declining 1.80%, and Indian Oil Corporation dropping 0.81%.
Crude oil prices have reached critical levels with Brent crude surging more than 12% over the past week, driven by escalating West Asia tensions and supply disruptions along key shipping routes. As reported by ET Now, economist Sunil Sinha estimates that every $10 increase in international crude oil prices could reduce India's GDP growth by around 20-30 basis points. With India's latest quarterly GDP growth standing at 7.8%, a $10 increase in crude prices could potentially bring down the growth rate. The impact is significant as higher crude prices increase India's import bill and can pressure inflation, with higher input and transportation costs affecting businesses and consumers. The latest rise marks a sharp reversal from the cooling seen earlier this year, when crude oil prices last touched similar levels in May but subsequently declined below $80 per barrel. Business Standard notes that higher crude prices can pressure PSU oil retailers as domestic LPG and kerosene are sold at regulated prices, with a sharp rise in global oil prices potentially increasing under-recoveries on such sales, potentially weighing on profitability.
The pressure on refined products has intensified significantly, with around 5-6 million barrels per day of refining capacity shut due to disruptions in the Middle East, attacks on Russian refineries, and restrictions on Chinese oil-product exports. According to CNBC TV18, diesel cracks have surged to around $50-$60 from their historical average of $15-$16 per barrel. This surge could push gross refining margins for oil marketing companies (OMCs) that do not pay windfall tax to $25-$30, compared with a historical $7-$8, while independent refiners paying windfall tax could see gross refining margins of $10-$12 against their historical $6-$7. Singapore gross refining margins (GRMs) have been well above historical averages, averaging $24.5 per barrel from April-August 2026, compared with the FY21-26 average of $5.6 per barrel.
While OMCs face pressure from higher crude prices, upstream oil producers moved in the opposite direction as higher crude prices potentially improve realisations. ONGC shares gained 2.2% to ₹242.57, while Oil India rose 0.9% to ₹505. However, other sectors sensitive to crude prices also came under pressure, with paint and tyre stocks declining as several petroleum derivatives are used as raw materials. Kansai Nerolac Paints fell 1.8%, Asian Paints declined 1.3%, and Berger Paints slipped 0.3%, while Apollo Tyres, JK Tyre & Industries and CEAT fell around 1-1.6%. Despite current challenges, analysts remain selectively bullish on OMCs with Emkay Global maintaining 'ADD' calls on OMCs with target prices of ₹160 on IOCL, ₹370 on BPCL and ₹410 on HPCL. The sector continues to look attractive when looking at FY28 valuations, with the combination of improving fundamentals and better balance sheets supporting the positive outlook, though H2FY27 looks bearish with chances of substantial under-recoveries as prolonged elevated oil prices could have implications for inflation, import costs, and overall economic growth.
