BPCL, Indian Oil, HPCL: Oil-sensitive stocks fall as crude oil prices jump 2% to $116/barrel; Nifty Oil & Gas down 2.2%

Oil-sensitive stocks like Hindustan Petroleum (HPCL), Bharat Petroleum (BPCL), Indian Oil (IOC), Asian Paints, Apollo Tyres, among several others declined on Wednesday, October 28, as investors focused on global crude prices surpassing $116 per barrel (bbl) this week amid risk of escalation in West Asia after US midterm elections.

Latest media reports suggest that the United States have cautioned West Asian countries to be prepared for military escalations after the upcoming US midterm elections next week, which in turn has the potential to impact the oil supply dynamics via the Strait of Hormuz.

Equity investors were focused on the elevated geopolitical tensions related to West Asia along with the overall subdued performance of the domestic market indices. The benchmark NIFTY50 and SENSEX were trading in negative territory due to massive selling pressure in heavyweight IT stocks.

The elevated crude oil prices in the global market were directly affecting the sentiment of Indian market investors, as a higher rate of crude oil increases the cost of raw materials for oil-sensitive companies while squeezing their margins thin.

NSE data showed that the sectoral benchmark Nifty Oil & Gas index lost 2.2% of its value to drop to an intraday low of 10,301.15 points on Wednesday’s market, in comparison to 10,536 points at the previous market close.

Stocks like HPCL, Aegis Logistics, BPCL, Chennai Petroleum, Indian Oil, ONGC, and Petronet LNG were leading the pack of laggards on Wednesday.

As of 12:43 pm (IST), the Nifty Oil & Gas index was trading 1.8% lower at around 10,341 points during the market session on October 28, as per the exchange data.

Oil-sensitive stocks in focus today

Oil surpasses $116/barrel

Global crude benchmark, Brent crude oil prices for the December contract rallied around 2% to hit an intraday high of $116.06 per barrel (bbl) on Wednesday’s market, in comparison to $113.88 per bbl at the previous commodity market close, according to Investing.com data.

Investors are fearing another supply chain disruption as reports suggest that the United States have informed West Asian countries about further potential escalations in the upcoming period.

Data showed that Brent crude prices have risen 6.5% in just five days and were up over 16% in the last one-month period. In the last three months, energy rates have risen 37% and have increased 11% in the last six-month period.

With oil prices rallying in the global market, sectors like paints, tyres, and oil marketing companies (OMCs) are the ones to be primarily impacted due to the elevated cost of raw materials.

The volatility in crude oil prices impacts these companies as they use the energy source as a raw material in their production process. Higher energy prices have a direct impact on the company's margins and profitability in a particular period.

Further escalations ahead?

According to a WSJ report, people aware of the development told the news portal that there are new signs that America and Israel are preparing for a potential wave of military strikes on Iran after the midterm elections, in an effort to force the country to negotiate a peace deal.

The report suggests that diplomatic and military communications are indicating an upcoming new round of heavy combat operations against Iran, risking a major escalation in the West Asia region.

At a rally last week, US President Donald Trump referred to a heavy U.S. and Israeli bombing campaign on Iran. While the White House has refrained from commenting on “sensitive military plans that may or may not exist.”