IndiGo, HPCL, other oil sensitive stocks plunge up to 5% as US strikes on Iran lift crude prices

Shares of IndiGo, SpiceJet, HPCL, BPCL, other oil sensitive stocks tumbled up to 5% on Wednesday after the United States carried out airstrikes on Iran and reinstated sanctions on Iranian crude sales, reigniting concerns over the stability of the Middle East ceasefire and the risk of fresh supply disruptions.

HPCL shares tumbled over 4% to Rs 388 on the BSE, while Bharat Petroleum plunged 5% to Rs 299 per share. Indian Oil shares declined 3.5% to Rs 137 on the BSE. Two listed airlines - Indigo declined over 3% to Rs 5,220, while SpiceJet dipped over a percent. Nifty FMCG, Oil & Gas, and Nifty Auto fell 1%, 2%, and 1.3%, respectively.

Downstream stocks usually come under pressure when oil prices rise as their input costs increase sharply while their ability to pass these costs on remains limited. These companies buy crude at higher prices, refine it, and sell the end products, but pricing is often regulated, restricting full cost pass-through to consumers. As a result, margins get squeezed when product prices do not rise in line with crude.

Crude oil price

Brent crude futures climbed $1.62, or 2.16%, to $76 a barrel, while U.S. West Texas Intermediate crude gained $1.63, or 2.31%, to $72 a barrel. Both benchmarks had already advanced about 3% on Tuesday after the United States withdrew the general licence that had allowed the sale of Iranian crude following the vessel attacks.

According to the U.S. Central Command, the strikes were launched in response to Iranian attacks on three commercial vessels passing through the Strait of Hormuz. The waterway is a critical route for transporting crude oil from the Middle East to global markets.

Analysts said the latest escalation has reminded markets that shipping through the Strait of Hormuz remains vulnerable. The renewed tensions have also challenged the prevailing expectation that global oil markets were heading into oversupply, prompting traders with large short positions to reassess their bets.

Also Read | Iran promises a 'decisive' answer to US strikes

Iran did not claim responsibility for the attacks on the vessels. However, Qatar blamed Iran for the incidents, including an attack on a Qatari liquefied natural gas tanker that was struck by a drone, triggering a fire in its engine room. A Saudi-flagged crude oil tanker, believed to be the supertanker Wedyan, was also reported damaged off the coast of Oman, although maritime security sources said the cause was not immediately known.

The incidents have once again raised concerns over shipping through the Strait of Hormuz, which handled cargoes equivalent to about one-fifth of global energy supply before the war began in February.

Oil prices had retreated to pre-war levels after the United States and Iran reached a truce last month. The decline encouraged traders to build sizeable short positions in oil futures on expectations that delayed Middle East supplies would soon return to the market.

What’s next?

The incidents have once again raised concerns over shipping through the Strait of Hormuz, which handled cargoes equivalent to about one-fifth of global energy supply before the war began in February.

Industry experts said normal operations in the strait are unlikely to resume quickly. They noted that restoring regular traffic would require coordinated vessel movements, restarting oil wells, repairing damaged infrastructure and agreements on de-mining operations. Several shipowners also continue to remain cautious about resuming operations in the Strait of Hormuz and the broader Persian Gulf.

Analysts also said global oil inventories were drawn down during the prolonged disruption to shipping through the strait and will take time to rebuild. They expect inventories to remain under pressure until additional crude supplies from the Gulf begin reaching international markets.

Also Read | US strikes Iran & blocks oil sales in new threats to ceasefire

Last month, Saudi Aramco Chief Executive Officer Amin Nasser had warned that any prolonged disruption in the Strait of Hormuz could delay the return of stability in global oil markets until 2027. According to him, an extended disruption could affect nearly 100 million barrels of oil supply every week. Saudi Aramco is the world's largest oil producer.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)