Crude oil prices briefly slipped below the $90-per-barrel mark for the first time since August, raising hopes of improved profitability for India's oil marketing companies (OMCs), including Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL).
Brent crude prices dropped below $90 per barrel during Tuesday's trading session, November 10, before recovering above the psychological level. The decline came after US President Donald Trump indicated that further military action against Iran was unlikely, raising expectations of a possible diplomatic resolution to the conflict and normalisation of energy supplies through the Strait of Hormuz.
The correction in crude prices has strengthened investor sentiment towards OMC stocks. HPCL, BPCL and IOC shares have gained between 10% and 13.5% so far in November, benefiting from expectations of lower crude procurement costs and improved marketing margins.
According to Seema Srivastava, Senior Research Analyst at SMC Global Securities, falling crude oil prices below $90 per barrel act as a powerful tailwind for Indian state-owned refiners such as BPCL, HPCL and IOC.
She said lower crude procurement costs can widen marketing margins and improve gross refining margins (GRMs), provided domestic fuel prices remain relatively stable. Cheaper crude can also ease working capital requirements, reduce the fiscal burden of under-recoveries on subsidised LPG and help control inflation.